Partial Privatization Upstream with Spatial Price Discrimination Downstream

John Heywood, Shiqiang Wang and Guangliang Ye ()
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Shiqiang Wang: Chinese Academy of Social Sciences, CASS
Guangliang Ye: Hainan University

Review of Industrial Organization, 2021, vol. 59, issue 1, No 4, 57-78

Abstract: Abstract We consider a mixed duopoly selling to downstream retailers that are engaged in spatial price discrimination. We show that the optimal degree of privatization falls below—often far below—the level that is implied in the absence of the vertical chain. The size of this reduction in privatization reflects the extent to which increasing transport cost (differentiation) increases double marginalization in contested market regions—as opposed to simply reducing demand in uncontested market regions. Moreover, we show that despite higher costs of production, a fully public monopoly upstream can be welfare-superior to the optimal mixed duopoly. This would not be the case in the absence of downstream differentiation.

Keywords: Differentiation; Mixed oligopoly; Privatization; Vertical chain (search for similar items in EconPapers)
JEL-codes: D43 L13 L33 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s11151-020-09804-9

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