Leadership and Privatisation in a Mixed Multi-product Oligopoly: An Endogenous Timing Model

Guangliang Ye

Australian Economic Papers, 2016, vol. 55, issue 2, 170-180

Abstract: type="main">

This paper examines both leadership choice and welfare consequences of privatisation in an endogenous timing mixed multi-product oligopoly. It shows that a multi-product firm undermines the welfare-maximising efforts of a public firm by cross-subsidising. The paper demonstrates that a unique subgame perfect Nash equilibrium emerges in a multi-product market, in contrast to the multiple equilibria of a single-product market. This unique equilibrium indicates that profit-maximising private firms retain leadership while a welfare-maximising public firm acts as a follower. Even on the off-equilibrium path where the public firm acts as a leader, it rarely generates maximum social welfare. However, privatising the public firm usually harms social welfare and results in a different timing structure in equilibrium.

Date: 2016
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