QUALITY AND WELFARE IN MIXED DUOPOLY: EFFECTS OF CAPACITY REDUCTION*

Masuyuki Nishijima

The Japanese Economic Review, 2009, vol. 60, issue 1, 97-109

Abstract: Under rationing of a public service due to its lower price and higher quality, the “privatization” could be regarded as a reduction in the capacity of the public service. We develop a model of mixed duopoly in which the service is vertically differentiated, a public firm is in a Stackelberg leader position, rationing happens, and the market is not covered. In one of two possible cases, it is shown that any reduction in the capacity of a public service will lower total surplus unless the price of the public service is too low and its quality is too high.

Date: 2009
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https://doi.org/10.1111/j.1468-5876.2008.00463.x

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