Endogenous Timing in Mixed Duopolies With Externality

Abstract

We investigate endogenous timing in a mixed duopoly with a negative externality. We find that quantity (price) competition yields a simultaneous‐move (sequential‐move) outcome under a significant negative externality. These results indicate that mixed duopolies yield the same results as private duopolies under a significant negative externality, which is in sharp contrast to the results in mixed duopolies without a negative externality. Unless the negative externality is insignificant, public leadership yields greater welfare than private leadership, and public leadership is more robust than the private leadership as equilibrium. If optimal environmental tax policy is introduced, however, private leadership yields the greatest welfare and this an equilibrium outcome in the endogenous timing game under quantity competition.