Alternative Strategies of a Public Enterprise in Oligopoly

Gianni De Fraja and Flavio Delbono

Oxford Economic Papers, 1989, vol. 41, issue 2, 302-11

Abstract: A study of the optimal behavior of a public firm in a market where there are also n private firms. The public firm aims at maximizing a social welfare function while the private firms aim at maximizing profit. The authors compare four possible regimes: (1) the public firm is a welfare maximizing Stackelberg leader; (2) it is a welfare maximizing Cournot-Nash player; (3) it is a profit maximizer (pure oligopoly); and (4) the whole industry is under government control (nationalization). When the number of firms is sufficiently large, the optimal strategy of a welfare maximizing firm is to act as if it wanted to maximize its profit. Copyright 1989 by Royal Economic Society.

Date: 1989
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