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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.

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  • 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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    3. Haraguchi, Junichi & Matsumura, Toshihiro, 2020. "Lack of commitment to future privatization policies may lead to worst welfare outcome," Economic Modelling, Elsevier, vol. 88(C), pages 181-187.
    4. Jiayi Joey Yu & Christopher S. Tang & ManMohan S. Sodhi & James Knuckles, 2020. "Optimal Subsidies for Development Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 22(6), pages 1131-1147, November.
    5. 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.
    6. Paul, Arindam & De, Parikshit, 2022. "Reversal of Bertrand-Cournot Ranking for Optimal Privatization Level," MPRA Paper 116272, University Library of Munich, Germany, revised 10 Feb 2023.
    7. Zhang, Juan & Huang, Jian, 2021. "Vehicle product-line strategy under government subsidy programs for electric/hybrid vehicles," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 146(C).
    8. 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.
    9. Nguyen, Xuan, 2015. "On the efficiency of private and state-owned enterprises in mixed markets," Economic Modelling, Elsevier, vol. 50(C), pages 130-137.
    10. Jiayi Joey Yu & Christopher S. Tang & Zuo-Jun Max Shen, 2018. "Improving Consumer Welfare and Manufacturer Profit via Government Subsidy Programs: Subsidizing Consumers or Manufacturers?," Manufacturing & Service Operations Management, INFORMS, vol. 20(4), pages 752-766, October.
    11. Yan, Qingyou & Yang, Le, 2018. "Optimal licensing schemes for a mixed ownership firm when facing uncertain R&D outcomes and technology spillover," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 550-572.
    12. Wang, Chia-Chi & Chiou, Jiunn-Rong, 2018. "Optimal privatization policy with Bertrand competition," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 538-546.
    13. Levin, Mark (Левин, Марк) & Busygin, V. (Бусыгин, В.) & Popova, E.V. (Попова, Е.), 2016. "Development and Analysis of Strategies for Selecting Models of Mixed Market Participants [Разработка И Анализ Моделей Выбора Стратегий Участниками Смешанных Рынков]," Working Papers 3054, Russian Presidential Academy of National Economy and Public Administration.
    14. Ohnishi, Kazuhiro, 2021. "Pollution, partial privatization and the effect of ambient charges," MPRA Paper 106319, University Library of Munich, Germany.
    15. Ohnishi, Kazuhiro, 2021. "Pollution, partial privatization and the effect of ambient charges," MPRA Paper 109592, University Library of Munich, Germany, revised 04 Sep 2021.
    16. 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).

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