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Optimal funding coverage in a mixed oligopoly with quality competition and price regulation

Ziad Ghandour () and Odd Rune Straume ()
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Ziad Ghandour: University of Minho

Journal of Economics, 2022, vol. 136, issue 3, No 1, 225 pages

Abstract: Abstract We study the optimal design of a public funding scheme in a mixed oligopoly setting (with applications to health care and education) with one welfare-maximising public provider and two profit-maximising private providers, where all providers compete on quality and where providers included in the public funding scheme are subject to price regulation. We find that the first-best solution cannot be implemented without including (at least) one of the private providers in the public funding scheme. However, inclusion of only one of the private providers is sufficient to induce the first-best outcome. Such inclusion allows for the elimination of a negative competition externality between the private providers that, all else equal, yields underprovision of quality.

Keywords: Quality; Competition; Mixed oligopoly; Public funding (search for similar items in EconPapers)
JEL-codes: H44 I11 L13 L33 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s00712-022-00778-8

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