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Demand-Enhancing Investment in Mixed Duopoly

  • Stefan Bühler


  • Simon Wey


This paper examines demand-enhancing investment and pricing in mixed duopoly. We analyze a model with differentiated products and reduced-form demand, making no assumptions on the relative efficiency of the public firm. First, we derive sufficient conditions for public investment to crowd out private investment. Second, we characterize the conditions under which individual investments (prices, respectively) in the mixed duopoly are higher (lower) than in the standard duopoly. Third, we show that with linear demand the public firm effectively disciplines the private firm, inducing an improvement in its price-quality ratio relative to the standard duopoly.

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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2010 with number 2010-16.

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Length: 23 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:usg:dp2010:2010-16
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  1. CREMER, Helmuth & MARCHAND, Maurice & THISSE, Jacques-François, . "Mixed oligopoly with differentiated products," CORE Discussion Papers RP 930, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Stefan Buehler & Dennis Gärtner & Daniel Halbheer, 2006. "Deregulating Network Industries: Dealing with Price-quality Tradeoffs," Journal of Regulatory Economics, Springer, vol. 30(1), pages 99-115, 07.
  3. de Palma, André & Thisse, Jacques-François, 1995. "Privatization and Efficiency in a Differentiated Industry," CEPR Discussion Papers 1136, C.E.P.R. Discussion Papers.
  4. Matsumura, Toshihiro, 1998. "Partial privatization in mixed duopoly," Journal of Public Economics, Elsevier, vol. 70(3), pages 473-483, December.
  5. Poyago-Theotoky, Joanna, 1998. "R&D Competition in a Mixed Duopoly under Uncertainty and Easy Imitation," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 415-428, September.
  6. Delbono, Flavio & Denicolo, Vincenzo, 1993. "Regulating innovative activity : The role of a public firm," International Journal of Industrial Organization, Elsevier, vol. 11(1), pages 35-48, March.
  7. de Fraja, Giovanni & Delbono, Flavio, 1989. "Alternative Strategies of a Public Enterprise in Oligopoly," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 302-11, April.
  8. Ishibashi, Ikuo & Matsumura, Toshihiro, 2006. "R&D competition between public and private sectors," European Economic Review, Elsevier, vol. 50(6), pages 1347-1366, August.
  9. Toshihiro Matsumura & Noriaki Matsushima, 2004. "Endogenous Cost Differentials between Public and Private Enterprises: A Mixed Duopoly Approach," Economica, London School of Economics and Political Science, vol. 71(284), pages 671-688, November.
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