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Public vs. Private Investments In Network Industries

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  • Jean-Marc Zogheib
  • Marc Bourreau

Abstract

We study the competition between a private firm and public firms on prices andinvestment in new infrastructures. While the private firm maximizes its profits,public firms maximize the sum of their profits and consumer surplus, subject to abudget constraint. We consider two scenarios of public intervention, with a nationalpublic firm and with local public firms. In a monopoly benchmark, we find that thenational public firm has the highest coverage and charges a uniform price allowingcross-subsidies between high-cost and low-cost areas. Moreover, the private firmcovers as much as local public firms. In a mixed duopoly, a stronger competitivepressure drives firms' prices up while it drives down (up) the national public (private)firm's coverage.

Suggested Citation

  • Jean-Marc Zogheib & Marc Bourreau, 2021. "Public vs. Private Investments In Network Industries," EconomiX Working Papers 2021-4, University of Paris Nanterre, EconomiX.
    • Handle: RePEc:drm:wpaper:2021-4
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    More about this item

    Keywords

    public firms; investment; network industries; mixed duopoly.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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