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Time-inconsistent Output Subsidy/Tax Policies in Free-entry Mixed Markets

Jiaqi Chen, Sang-Ho Lee () and Timur Muminov ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper considers time-inconsistent output subsidy/tax policies in free-entry mixed markets and compares committed and non-committed regimes under different competition modes. In a committed regime where the subsidy is determined before the private firms enter the market, the optimal rate is zero in either Cournot game or Stackelberg game when the public firm is a follower, while it is negative in Stackelberg game with public leadership. However, in the non-committed regime where the subsidy is not determined before entry, the optimal rate is always positive. Finally, we show that private leadership is the best for social welfare regardless of the timing of output subsidy/tax policies.

Keywords: Free-entry mixed market; Committed policy; Non-committed policy; Output subsidy (search for similar items in EconPapers)
JEL-codes: H20 H42 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-pbe and nep-pub
Date: 2019-01-14
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