Public-Private Competition in Regulated Markets

Ziad R. Ghandour ()
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Ziad R. Ghandour: Department of Economics / NIPE, University of Minho

No 02/2019, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: We analyse the effect of competition on quality provision in mixed markets, such as healthcare and education, where public and private providers coexist. We draw two key assumptions about the public provider in such markets, namely in that it faces a regulated price and is (partly) motivated. We also explore the effects of changes in the state subsidy and co-payment fees. Our main contribution is that, under certain circumstances, more competition leads to lower average quality in equilibrium. Similarly, the effects of higher co-payment fees or larger state subsidies on average quality are also a priori ambiguous. These conclusions hold regardless of whether providers seek profit maximisation or the public provider has altruistic preferences. Furthermore, we characterise the incentives for the private provider to unilaterally relocate towards the public provider.

Keywords: Mixed Duopoly; Competition; Quality Provision; Motivated Provider; State Subsidy; Co-payment Fees (search for similar items in EconPapers)
JEL-codes: D4 L1 L2 L3 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-reg
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