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Quality and Competition between Public and Private Firms

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  • Liisa Laine

    (Boston University and Dand School of Business and Economics, University of Jyvaskyla)

  • Ching-To Albert Ma

    () (Boston University)

Abstract

We study a multi-stage, quality-price game between a public firm and a private firm. The market consists of a set of consumers who have different quality valuations. A public firm aims to maximize social surplus, whereas the private firm maximizes profit. In the first stage, both firms simultaneously choose qualities. In the second stage, both firms simultaneously choose prices. There are multiple equilibria. In some, the public firm chooses a low quality, and the private firm chooses a high quality. In others, the opposite is true. We characterize subgame perfect equilibria for general consumer valuation distributions and quality cost functions, and provide conditions for first-best equilibrium qualities. Various policy implications are drawn.

Suggested Citation

  • Liisa Laine & Ching-To Albert Ma, 2015. "Quality and Competition between Public and Private Firms," Boston University - Department of Economics - Working Papers Series wp2015-005, Boston University - Department of Economics.
  • Handle: RePEc:bos:wpaper:wp2015-005
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    Cited by:

    1. Benassi, Corrado & Castellani, Massimiliano & Mussoni, Maurizio, 2016. "Price equilibrium and willingness to pay in a vertically differentiated mixed duopoly," Journal of Economic Behavior & Organization, Elsevier, pages 86-96.
    2. repec:eee:jeborg:v:140:y:2017:i:c:p:336-353 is not listed on IDEAS
    3. Simona Grassi & Ching-To Albert Ma, 2015. "Information Acquisition, Referral, and Organization," Boston University - Department of Economics - Working Papers Series wp2015-007, Boston University - Department of Economics.
    4. Besley, Timothy J. & Malcomson, James M, 2016. "Choice and Competition in Public Service Provision," CEPR Discussion Papers 11441, C.E.P.R. Discussion Papers.
    5. Sergei Koulayev & Marc Rysman & Scott Schuh & Joanna Stavins, 2016. "Explaining adoption and use of payment instruments by US consumers," RAND Journal of Economics, RAND Corporation, pages 293-325.

    More about this item

    Keywords

    price-quality competition; quality; public firm; private firm;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise

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