Abstract
This chapter explores the economic consequences of asymmetric firm objectives in a successive oligopoly, particularly the impact of objective asymmetry on the vertical relations between the firms in two adjacent industries. The scarcity of studies on the issue and recent developments in Eastern Europe and some other economies provide justifications for such analysis. Objective asymmetry originates in mixed oligopolistic markets. In such markets, there are at least one private firm and one public firm. Private firms are profit maximizers. However, public firms behave differently. Different assumptions are made about the public firm's objectives. The most common is that a public firm maximizes social welfare. The chapter examines the situation in which private and public firms compete in one of the two sequentially related industries. This allows one to investigate how asymmetric objectives affect the vertical relations between the firms and how the equilibrium outcome changes under alternative vertical structures. These issues are studied by investigating the interactions between public firms and private firms in vertically related industries.
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