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Ownership Versus Timing Of The Game

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  • MEHRDAD SEPAHVAND
  • RICHARD C. CORNES

Abstract

This study examines the impact of timing of the game on the welfare gains of privatisation in the presence of strategic trade policy. We argue that only if the public enterprise acts as a Cournot player will it generate an additional distortion that could outweigh the distortion caused by the oligopolistic behaviour of private firms. But with a first-mover advantage it can serve as an effective regulatory device comparable with a production subsidy. We further show that, in the presence of strategic trade policy, Cournot assumptions are inconsistent with the firms' preferences over the timing of the game. As public Stackelberg leadership is a subgame Nash equilibrium of the extended game with endogenous order of moves, we conclude that it is the timing of the game rather than firms' ownership structure which is responsible for the inefficiency of an international mixed market found by earlier studies. Copyright 2007 The Authors Journal compilation 2007 Blackwell Publishing Ltd/ University of Adelaide and Flinders University .

Suggested Citation

  • Mehrdad Sepahvand & Richard C. Cornes, 2007. "Ownership Versus Timing Of The Game," Australian Economic Papers, Wiley Blackwell, vol. 46(4), pages 305-314, December.
  • Handle: RePEc:bla:ausecp:v:46:y:2007:i:4:p:305-314
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    References listed on IDEAS

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    1. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
    2. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
    3. John Vickers & George Yarrow, 1991. "Economic Perspectives on Privatization," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 111-132, Spring.
    4. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455 Elsevier.
    5. David E. M. Sappington & Joseph E. Stiglitz, 1987. "Privatization, information and incentives," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 6(4), pages 567-585.
    6. White, Mark D., 1996. "Mixed oligopoly, privatization and subsidization," Economics Letters, Elsevier, vol. 53(2), pages 189-195, November.
    7. Amir, Rabah & Grilo, Isabel, 1999. "Stackelberg versus Cournot Equilibrium," Games and Economic Behavior, Elsevier, vol. 26(1), pages 1-21, January.
    8. Kenneth Fjell & Debashis Pal, 1996. "A Mixed Oligopoly in the Presence of Foreign Private Firms," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 737-743, August.
    9. de Fraja, Giovanni & Delbono, Flavio, 1990. " Game Theoretic Models of Mixed Oligopoly," Journal of Economic Surveys, Wiley Blackwell, vol. 4(1), pages 1-17.
    10. William C. Merrill & Norman Schneider, 1966. "Government Firms in Oligopoly Industries: A Short-Run Analysis," The Quarterly Journal of Economics, Oxford University Press, vol. 80(3), pages 400-412.
    11. Fjell, Kenneth & Heywood, John S, 2002. "Public Stackelberg Leadership in a Mixed Oligopoly with Foreign Firms," Australian Economic Papers, Wiley Blackwell, vol. 41(3), pages 267-281, September.
    12. Pal, Debashis, 1998. "Endogenous timing in a mixed oligopoly," Economics Letters, Elsevier, vol. 61(2), pages 181-185, November.
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    Cited by:

    1. Toshihiro Matsumura & Akira Ogawa, 2010. "On The Robustness Of Private Leadership In Mixed Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 49(2), pages 149-160, June.
    2. Leonard F. S. Wang & Ya-Chin Wang & Lihong Zhao, 2009. "Privatization And Efficiency Gain In An International Mixed Oligopoly With Asymmetric Costs," The Japanese Economic Review, Japanese Economic Association, vol. 60(4), pages 539-559.
    3. John S. Heywood & Guangliang Ye, 2009. "Privatisation And Timing In A Mixed Oligopoly With Both Foreign And Domestic Firms ," Australian Economic Papers, Wiley Blackwell, vol. 48(4), pages 320-332, December.

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