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Should public sectors be complements of private sectors?

Listed author(s):
  • Ikuo Ishibashi

    (Department of Economics, Aoyama Gakuin University)

  • Noriaki Matsushima

    (Graduate School of Business Administration, Kobe University)

This paper discusses competition between high-quality private service providers that maximize their own profits and a low-quality public service provider that maximizes social surplus. There are two heterogeneous consumer groups: those who demand only high-quality services and those who care little whether services are highor low-quality. The setting reflects the fact that some consumers feel dissatisfaction with public service providers. We show that, under certain conditions, social welfare is smaller when there is a public service provider than when there is not. The result holds even though the efficiency of the public service is equal to that of the private services.

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File URL: http://www.b.kobe-u.ac.jp/paper/2008_58.pdf
File Function: First version, 2008
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Paper provided by Kobe University, Graduate School of Business Administration in its series Discussion Papers with number 2008-58.

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Length: 25 pages
Date of creation: Dec 2008
Handle: RePEc:kbb:dpaper:2008-58
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Web page: http://www.b.kobe-u.ac.jp/repec/kbb/

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