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Comparing Bertrand and Cournot Outcomes in the Presence of Public Firms

Author

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  • Arghya Ghosh

    (School of Economics, The University of New South Wales)

  • Manipushpak Mitra

    (Indian Statistical Institute)

Abstract

We revisit the classic comparison between Bertrand and Cournot outcomes in a mixed market with private and public firms. A departure from the standard setting, i.e., one where all firms maximize profits, provides new insights. A welfare-maximizing public firm's price is strictly lower while its output is strictly higher in Cournot competition. And whereas the private firm's quantity is strictly lower in Cournot (as in the standard setting), its price can be higher or lower. Despite this ambiguity, both firms, public and private, earn strictly lower profits in Cournot. The consumer surplus is strictly higher in Cournot under a linear demand structure. All these results also hold with more than two firms under a wide range of parameterizations. The ranking reversals also hold in a richer setting with a partially privatized public firm, where the extent of privatization is endogenously determined by a welfare-maximizing government. As a by-product of our analysis, we find that in a differentiated duopoly setting, partial privatization always improves welfare in Cournot but not necessarily in Bertrand competition.

Suggested Citation

  • Arghya Ghosh & Manipushpak Mitra, 2008. "Comparing Bertrand and Cournot Outcomes in the Presence of Public Firms," Discussion Papers 2008-18, School of Economics, The University of New South Wales.
  • Handle: RePEc:swe:wpaper:2008-18
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    References listed on IDEAS

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    Cited by:

    1. Corrado Benassi & Alessandra Chirco & Marcella Scrimitore, 2014. "Optimal manipulation rules in a mixed oligopoly," Journal of Economics, Springer, vol. 112(1), pages 61-84, May.
    2. Corrado Benassi & Alessandra Chirco & Marcella Scrimitore, 2011. "Optimal Manipulation Rules in a Mixed Duopoly," Working Paper series 43_11, Rimini Centre for Economic Analysis.
    3. Roy Chowdhury, Prabal, 2009. "Mixed Duopoly with Price Competition," MPRA Paper 9220, University Library of Munich, Germany.
    4. Scrimitore, Marcella, 2011. "Profitability in Cournot and Bertrand Mixed Markets under Endogenous Objectives," MPRA Paper 35643, University Library of Munich, Germany.
    5. Ghosh, Arghya & Mitra, Manipushpak, 2010. "Comparing Bertrand and Cournot in mixed markets," Economics Letters, Elsevier, vol. 109(2), pages 72-74, November.
    6. Marcella Scrimitore, 2014. "Profitability under Commitment in Cournot and Bertrand Mixed Markets," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 170(4), pages 684-703, December.

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    More about this item

    Keywords

    Bertrand; Cournot; public firms; partial privatization;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

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