Abstract
We investigate a differentiated mixed duopoly with two cities where a public firm and a private firm are located in different cities. We find that in most cases the privatization level is higher under centralization (the national or regional government owns the public firm) than under decentralization (a city government owns the public firm). In particular, under decentralization, the public firm is fully owned by the city government if the substitutability of differentiated goods is relatively high. While the social welfare is higher under centralization, the welfare of the city with the public firm is higher under decentralization in most cases.
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