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Excess Capacity Investment: Government versus Private Firms

Author

Listed:
  • Sasaki, D.
  • Wen, M.

Abstract

A supergame between public and private firms in an oligopolist industry is studied in this paper. We discover that there is a repeated-game equilibrium where the public firm produces less than its one-shot Nash equilibrium quantity, nevertheless the total supply and hence the social welfare are higher than in the one-shot Nash equilibrium. In such an equilibrium, the public firm, who is a social welfare maximiser, contracts its production below its full capacity in order to encourage the private firm's expansion.

Suggested Citation

  • Sasaki, D. & Wen, M., 1998. "Excess Capacity Investment: Government versus Private Firms," Department of Economics - Working Papers Series 626, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:626
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    Keywords

    INVESTMENTS ; GOVERNMENT ; PUBLIC ENTERPRISES;

    JEL classification:

    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

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