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Quantity competition vs. price competition under optimal subsidy in a mixed oligopoly

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  • Scrimitore, Marcella

Abstract

This paper reconsiders the literature on the irrelevance of privatization in mixed markets within which both quantity and price competition are investigated under product differentiation. By allowing for partially privatization of a state-controlled firm, we explore competition under different timings of firms' moves and derive the conditions under which an optimal subsidy allows to achieve maximum efficiency. We show that, irrespective of the mode of competition, while the ownership of the controlled firm is irrelevant when firms play simultaneously, it matters when firms compete sequentially, requiring the leader to be publicly-owned for an optimal subsidy to restore the first-best. The paper also focuses on the extent to which a subsidy is needed to attain the social optimum in the considered scenarios, providing an ordering which highlights the subsidy equivalence between Cournot (Bertrand) private leadership and simultaneous Bertrand (Cournot) under duopoly, and the dominance of the former in oligopoly.

Suggested Citation

  • Scrimitore, Marcella, 2014. "Quantity competition vs. price competition under optimal subsidy in a mixed oligopoly," Economic Modelling, Elsevier, vol. 42(C), pages 166-176.
  • Handle: RePEc:eee:ecmode:v:42:y:2014:i:c:p:166-176
    DOI: 10.1016/j.econmod.2014.06.006
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    References listed on IDEAS

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    Cited by:

    1. Xu, Lili & Cho, Sumi & Lee, Sang-Ho, 2016. "Emission tax and optimal privatization in Cournot–Bertrand comparison," Economic Modelling, Elsevier, vol. 55(C), pages 73-82.
    2. Bian, Junsong & Guo, Xiaolei & Li, Kevin W., 2015. "Distribution channel strategies in a mixed market," International Journal of Production Economics, Elsevier, vol. 162(C), pages 13-24.
    3. repec:eee:reveco:v:58:y:2018:i:c:p:550-572 is not listed on IDEAS
    4. repec:kea:keappr:ker-20170630-33-1-06 is not listed on IDEAS
    5. Nguyen, Xuan, 2015. "On the efficiency of private and state-owned enterprises in mixed markets," Economic Modelling, Elsevier, vol. 50(C), pages 130-137.
    6. HIGASHIDA Keisaku, 2018. "Subsidies to Public Firms and Competition Modes under a Mixed Duopoly," Discussion papers 18001, Research Institute of Economy, Trade and Industry (RIETI).
    7. Sumi Cho & Sang-Ho Lee, 2017. "Subsidization Policy on the Social Enterprise for the Underprivileged," Korean Economic Review, Korean Economic Association, vol. 33, pages 153-178.
    8. repec:eee:reveco:v:56:y:2018:i:c:p:538-546 is not listed on IDEAS

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