Mixed oligopoly with consumer-friendly public firms

Prabal Roy Chowdhury ()

MPRA Paper from University Library of Munich, Germany

Abstract: We consider a mixed oligopoly with a public firm that maximizes the sum of its own profits and consumers' surplus. We characterize the unique pure strategy equilibrium and show that as long as the cost function is not ``too concave'', privatization reduces welfare. We find that while the first best cannot be implemented using a tax/subsidy policy that is the same for all firms, a budget-balancing policy that involves a tax on the public firm, coupled with subsidies to the private firms, can do so. Further, the optimal tax/subsidy policy is critically dependent on whether there is privatization or not.

Keywords: Mixed oligopoly; public firms; subsidy; tax; irrelevance principle; privatization. (search for similar items in EconPapers)
JEL-codes: L2 L3 L1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-mic
Date: 2007-07
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