Quantity Competition vs. Price Competition under Optimal Subsidy in a Mixed Duopoly
This paper reconsiders the literature on the irrelevance of privatization in mixed markets, addressing both quantity and price competition in a duopoly with differentiated products. By allowing for partially privatizing 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, 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 allocation, irrespective of the mode of competition. The paper also focuses on the extent to which a subsidy is needed to attain the social optimum, highlighting the equivalence between a price (quantity) game with public leadership or simultaneous moves and a quantity (price) game with private leadership.
|Date of creation:||15 Sep 2012|
|Date of revision:|
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- Yoshihiro Tomaru & Masayuki Saito, 2010. "Mixed Duopoly, Privatization And Subsidization In An Endogenous Timing Framework," Manchester School, University of Manchester, vol. 78(1), pages 41-59, 01.
- Yoshihiro Tomaru, 2006. "Mixed Oligopoly, Partial Privatization and Subsidization," Economics Bulletin, AccessEcon, vol. 12(5), pages 1-6.
- Gareth Myles & Hassan Khodavaisi & Nigar Hashimzade, 2007. "An irrelevance result with differentiated goods," Economics Bulletin, AccessEcon, vol. 8(2), pages 1-7.
- Joanna Poyago-Theotoky, 2001. "Mixed oligopoly, subsidization and the order of firms' moves: an irrelevance result," Economics Bulletin, AccessEcon, vol. 12(3), pages 1-5.
- Yuanzhu Lu, 2005.
"Endogenous Timing in a Mixed Oligopoly with Foreign Competitors: the Linear Demand Case,"
CEMA Working Papers
506, China Economics and Management Academy, Central University of Finance and Economics.
- Yuanzhu Lu, 2006. "Endogenous Timing in a Mixed Oligopoly with Foreign Competitors: the Linear Demand Case," Journal of Economics, Springer, vol. 88(1), pages 49-68, June.
- Pal, Debashis, 1998. "Endogenous timing in a mixed oligopoly," Economics Letters, Elsevier, vol. 61(2), pages 181-185, November.
- Yasuhiko Nakamura & Tomohiro Inoue, 2009. "Endogenous timing in a mixed duopoly: price competition with managerial delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(5), pages 325-333.
- repec:ebl:ecbull:v:12:y:2002:i:1:p:1-6 is not listed on IDEAS
- Fjell, Kenneth & Heywood, John S., 2004. "Mixed oligopoly, subsidization and the order of firm's moves: the relevance of privatization," Economics Letters, Elsevier, vol. 83(3), pages 411-416, June.
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