MIXED DUOPOLY, PRIVATIZATION AND SUBSIDIZATION IN AN ENDOGENOUS TIMING FRAMEWORK*

Yoshihiro Tomaru () and Masayuki Saito

Manchester School, 2010, vol. 78, issue 1, 41-59

Abstract: This is the first paper to consider the endogenous timing in mixed duopoly with subsidization. Pal (Economics Letters, Vol. 61 (1998), pp. 181–185) shows that private leadership is always an equilibrium outcome in a mixed duopoly without any subsidy. By including the production subsidy, we observe that private leadership may disappear from equilibrium and that Cournot and public leadership become the likely equilibrium outcomes. Furthermore, we find that when firms have identical technologies the first‐best allocation can be attained by the same subsidy before and after privatization even though firms' production timings are endogenized. Finally, we examine privatization with lobbying activities and show that such privatization leads to the deterioration of social welfare.

Date: 2010
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