Endogenous market structures in a mixed oligopoly with a public firm whose managerial contract is based on welfare and bargaining over the managerial contract of a private firm

Abstract

We consider the endogenous choice problem of strategic contracts for public and private firms in a managerial mixed duopoly with differentiated goods. Focusing on the situation wherein the weighted sum of social welfare and quantity is adopted as its delegation contract within the public firm, we investigate the situation wherein the managerial delegation contract of the public firm is determined by maximizing social welfare, which is equal to the objective function of its owner, and the managerial delegation contract of the private firm is determined by bargaining over the content of the managerial delegation contract between its owner and manager. This paper clarifies that the equilibrium market structure depends on the bargaining power of the manager within the private firm. More concretely, when the bargaining power is sufficiently low, no equilibrium market structure exists. Furthermore, when the bargaining power is moderate (sufficiently high), the game wherein the public firm chooses a quantity contract and the private firm chooses a price contract and (both firms choose price contracts) becomes the unique equilibrium market structure.