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Mixed oligopoly, vertical product differentiation and fixed quality-dependent costs

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  • Stefan Lutz

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  • Mario Pezzino

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Abstract

A private and a public firm face fixed quality-dependent costs of production and compete first in quality and then either in prices or in quantities. In the long run the public firm targets welfare maximization whereas the private firm maximizes profits. In the short run both firms compete in prices or quantities to maximize profits. Mixed competition is always socially desirable compared to a private duopoly regardless of the type of competition in the short run and the equilibrium quality ranking. In addition, mixed competition seems to be a more efficient regulatory instrument than the adoption of a minimum quality standard.

Suggested Citation

  • Stefan Lutz & Mario Pezzino, 2010. "Mixed oligopoly, vertical product differentiation and fixed quality-dependent costs," ICER Working Papers 08-2010, ICER - International Centre for Economic Research.
  • Handle: RePEc:icr:wpicer:08-2010
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    References listed on IDEAS

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    Cited by:

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    3. WATANABE Mariko, 2020. "Competitive Neutrality of State-owned Enterprises in China's Steel Industry: Causal Inference on the Impacts of Subsidies," Discussion papers 20014, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item

    Keywords

    vertical product differentiation; mixed oligopoly; quality; price and quantity competition;
    All these keywords.

    JEL classification:

    • 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
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets

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