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Price-Quality Competition in a Mixed Duopoly

Tilman Klumpp () and Xuejuan Su ()

No 2018-5, Working Papers from University of Alberta, Department of Economics

Abstract: We examine competition between a private and a public provider in markets for "merit goods" such as education, healthcare, housing, recreation, or culture. The private firm provides a high-price/high-quality variety of the good and serves richer individuals, while the public firm provides a low-price/low-quality variety and serves poorer individuals. We first characterize the private competitor's best response to changes in the public firm's price and quality. This enables us to examine the distributional effects of government policies aimed at enhancing access to publicly provided goods, and of changes to the government's budget constraint that make publicly provided goods more expensive or decrease their quality. We then derive the government's optimal provision policy, taking the private response into consideration. Our results have implications for the financing of publicly provided goods, and for whether additional resources, if available, should be spent on reducing the price or enhancing the quality of these goods.

Keywords: Mixed duopoly; quality differentiation; public provision of private goods; crowding-out/in; funding of public services; distribution (search for similar items in EconPapers)
JEL-codes: D21 D43 H11 H42 H44 I00 L38 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2018-04-03
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
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Journal Article: Price–quality competition in a mixed duopoly (2019) Downloads
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