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What role should public enterprises play in free-entry markets?

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  • Hiroaki Ino
  • Toshihiro Matsumura

Abstract

We investigate a desirable role of public enterprise in mixed oligopoly in free-entry markets. We compare the following three cases: (i) a public firm produces before private firms (public leadership), (ii) all firms produce simultaneously (Cournot), (iii) a public firm produces after private firms (private leadership). We find that private leadership is best and public leadership is worst, in contrast to the cases without entries and exits of private firms. We also investigate the welfare implication of privatization. We find that some important results shown by existing works do not hold under private leadership.
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Suggested Citation

  • Hiroaki Ino & Toshihiro Matsumura, 2010. "What role should public enterprises play in free-entry markets?," Journal of Economics, Springer, vol. 101(3), pages 213-230, November.
  • Handle: RePEc:kap:jeczfn:v:101:y:2010:i:3:p:213-230
    DOI: 10.1007/s00712-010-0153-0
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    More about this item

    Keywords

    Free-entry market; Stackelberg; Cournot; Mixed oligopoly; Commitment; H42; L13;
    All these keywords.

    JEL classification:

    • 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

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