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Demand-Enhancing Investment in Mixed Duopoly

Stefan Bühler () and Simon Wey ()
Authors registered in the RePEc Author Service: Stefan Buehler ()

University of St. Gallen Department of Economics working paper series 2010 from Department of Economics, University of St. Gallen

Abstract: This paper examines demand-enhancing investment and pricing in mixed duopoly. We analyze a model with differentiated products and reduced-form demand, making no assumptions on the relative efficiency of the public firm. First, we derive sufficient conditions for public investment to crowd out private investment. Second, we characterize the conditions under which individual investments (prices, respectively) in the mixed duopoly are higher (lower) than in the standard duopoly. Third, we show that with linear demand the public firm effectively disciplines the private firm, inducing an improvement in its price-quality ratio relative to the standard duopoly.

Keywords: Mixed oligopoly; price; investment; quality (search for similar items in EconPapers)
JEL-codes: D43 H42 L13 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2010-05
New Economics Papers: this item is included in nep-com and nep-ind
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