Equilibrium coexistence of public and private firms and the plausibility of price competition

Article Type

Research Article

Publication Title

Journal of Institutional and Theoretical Economics

Abstract

We consider a differentiated product duopoly where a regulated firm competes with a private firm. The instrument of regulation is the level of privatization. First, the regulator determines the level of privatization to maximize social welfare. Thereafter, both firms endogenously choose the mode of competition (that is, whether to compete in price or quantity). Finally, the two firms compete in the market. Under a very general demand specification, we show that when the products are imperfect substitutes (complements), public (strictly partially private) and private firms coexist. Moreover, in the second stage, the firms compete in prices.

First Page

217

Last Page

242

DOI

10.1628/jite-2019-0041

Publication Date

1-1-2020

Comments

Open Access, Green

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