Demand-Enhancing Investment in Mixed Duopoly
AbstractThis paper examines demand-enhancing investment and pricing in mixed duopoly. We analyze a model with differentiated products and reduced-form demand, making no assumptions on the relative efficiency of the public firm. First, we derive sufficient conditions for public investment to crowd out private investment. Second, we characterize the conditions under which individual investments (prices, respectively) in the mixed duopoly are higher (lower) than in the standard duopoly. Third, we show that with linear demand the public firm effectively disciplines the private firm, inducing an improvement in its price-quality ratio relative to the standard duopoly.
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Bibliographic InfoPaper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2010 with number 2010-16.
Length: 23 pages
Date of creation: May 2010
Date of revision:
Mixed oligopoly; price; investment; quality;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-04 (All new papers)
- NEP-COM-2010-06-04 (Industrial Competition)
- NEP-IND-2010-06-04 (Industrial Organization)
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