Chapter

Price Competition in a Mixed Duopoly

Krishnendu Ghosh Dastidar and Uday Bhanu Sinha

in Dimensions of Economic Theory and Policy

Published in print October 2011 | ISBN: 9780198073970
Published online September 2012 | e-ISBN: 9780199081615 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780198073970.003.0016
Price Competition in a Mixed Duopoly

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Recent studies have addressed mixed oligopoly models where state-owned welfare-maximizing public firms and profit-maximizing private firms coexist. Some studies have addressed the consequences of privatization in quantity setting models, while others have extended the analysis of mixed oligopoly to include foreign firms. There is evidence that welfare is unchanged by privatization if output subsidies can be used as an instrument both before and after privatization. This chapter explores the entire set of pure strategy Bertrand equilibrium in a mixed duopoly with convex costs and shows that the set of equilibria is exactly the same as in the case where both firms are private. When both firms are public, the set of equilibrium prices is larger than that in a mixed duopoly. By analysing sequential move price games, the chapter proves that the best possible outcome (in terms of welfare) is achieved when the public firm is the leader.

Keywords: privatization; mixed duopoly; Bertrand equilibrium; price games; welfare; public firms; private firms; convex costs; equilibrium prices

Chapter.  3858 words. 

Subjects: Microeconomics

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