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Product differentiation in a mixed duopoly

Agustín Gil ()
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Agustín Gil: Department of Economic Analysis. Facultad de Ciencias Económicas y Empresariales. Universidad de Zaragoza.

Documentos de Trabajo from Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza

Abstract: This paper analyzes a mixed duopoly with horizontal product differentiation using the unconstrained Hotelling model with quadratic transport costs. Firms play a noncooperative two-stage game on locations (first stage) and prices (second stage), and we consider that the firms move simultaneously or sequentially in both stages. We examine how the presence of a public firm affects both locations (the nature and degree of differentiation) and prices at equilibrium, and we compare these with the results of the private duopoly, in order to determine the effects of privatization. We find that, save in cases where the private firm is leader on prices where there are multiple equilibria, in the remainder of the cases there are two symmetrical equilibria (depending on whether one firm is located to the left or right of the other); the degree of differentiation of the product and the prices are lower; and the social welfare is higher than in the private duopoly. Privatization of the public firm is therefore not socially desirable

Keywords: Mixed duopoly; spatial competition; privatization (search for similar items in EconPapers)
JEL-codes: L13 L32 (search for similar items in EconPapers)
Date: 2005-08
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Handle: RePEc:zar:wpaper:dt2005-08