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Optimal funding coverage in a mixed oligopoly with quality competition and price regulation

Author

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  • Ziad Ghandour

    (University of Minho)

  • Odd Rune Straume

    (University of Minho
    University of Bergen)

Abstract

We study the optimal design of a public funding scheme in a mixed oligopoly setting (with applications to health care and education) with one welfare-maximising public provider and two profit-maximising private providers, where all providers compete on quality and where providers included in the public funding scheme are subject to price regulation. We find that the first-best solution cannot be implemented without including (at least) one of the private providers in the public funding scheme. However, inclusion of only one of the private providers is sufficient to induce the first-best outcome. Such inclusion allows for the elimination of a negative competition externality between the private providers that, all else equal, yields underprovision of quality.

Suggested Citation

  • Ziad Ghandour & Odd Rune Straume, 2022. "Optimal funding coverage in a mixed oligopoly with quality competition and price regulation," Journal of Economics, Springer, vol. 136(3), pages 201-225, August.
  • Handle: RePEc:kap:jeczfn:v:136:y:2022:i:3:d:10.1007_s00712-022-00778-8
    DOI: 10.1007/s00712-022-00778-8
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    References listed on IDEAS

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    2. Leonard F. S. Wang & Yoshihiro Tomaru & Chan Zhou, 2024. "Free entry in mixed oligopoly leads to insufficient privatization?," International Journal of Economic Theory, The International Society for Economic Theory, vol. 20(1), pages 56-69, March.

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    More about this item

    Keywords

    Quality; Competition; Mixed oligopoly; Public funding;
    All these keywords.

    JEL classification:

    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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