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Dynamic Oligopoly, Investment in Capacity and Government Firms

Richard Harris and Elmer Wiens ()

Working Paper from Economics Department, Queen's University

Abstract: This paper examines the role a government firm can play in coordinating the capacity investment decisions of firms in an oligopoly. If the government firm can monitor the investment decisions of private firms there exists a reaction function for the government, giving its own investment as a function of all private firms' investment, such that the dominant strategy for any private firm is to choose the socially correct capacity expansion plan. If the government can only monitor levels of capital stock complete intertemporal optimality cannot be achieved.

Date: 1977
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