Organizational form and excess burden of taxation in a multiproduct mixed oligopoly

Abstract

We incorporate the excess burden of taxation into a multiproduct mixed oligopoly to analyze the endogenous choice of organizational forms between the multidivisional form (M-form) for divisional incentives and the unitary form (U-form) for corporate incentives. The M-form (U-form) in the managerial delegation for public and private firms is a dominant strategy if the degree of the excess burden of taxation is low (high). Furthermore, asymmetric organizational forms exist in the intermediate range. In a symmetric equilibrium under a mixed duopoly with the M-form, consumer surplus is always greater than that with the U-form, while social welfare crucially depends on whether the excess burden of taxation is higher than a certain threshold. Ultimately, social welfare and consumer surplus are always greater in a mixed duopoly than in privatization. Moreover, extending the analysis of two private firms and one public firm yields (a)symmetric equilibrium in which private firms do not choose the M-form regardless of the degree of the excess burden of taxation.