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Capacity choice in a mixed duopoly with a foreign competitor

  • Jorge Fernández-Ruiz

    ()

    (El Colegio de México)

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    This paper analyzes a mixed duopoly in which a public firm and a (possibly partially) foreign-owned firm choose their capacity scales before competing in quantities. We show that the private firm chooses over-capacity, as in previous literature, except if it is completely foreign-owned. In this polar case, the private firm chooses the cost-minimizing capacity scale. We also show that the change in the nationality of the private firm does not essentially alter the public firm's choice, since this firm chooses under-capacity if products are substitutes and over-capacity if they are complements, just as it does when it faces a domestic competitor.

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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I3-P255.pdf
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    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 32 (2012)
    Issue (Month): 3 ()
    Pages: 2653-2661

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    Handle: RePEc:ebl:ecbull:eb-12-00445
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    1. Wang, Leonard F.S. & Chen, Tai-Liang, 2011. "Mixed oligopoly, optimal privatization, and foreign penetration," Economic Modelling, Elsevier, vol. 28(4), pages 1465-1470, July.
    2. Wen, Mei & Sasaki, Dan, 2001. "Would Excess Capacity in Public Firms Be Socially Optimal?," The Economic Record, The Economic Society of Australia, vol. 77(238), pages 283-90, September.
    3. Yuanzhu Lu & Sougata Poddar, 2004. "Mixed oligopoly and the choice of capacity," CEMA Working Papers 495, China Economics and Management Academy, Central University of Finance and Economics.
    4. Dave Furth & Dan Kovenock, 1993. "Price leadership in a duopoly with capacity constraints and product differentiation," Journal of Economics, Springer, vol. 57(1), pages 1-35, February.
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