Abstract
Modeling an international mixed duopoly composed of a private firm from a capitalist country (CC), and a state firm from a post-communist country (PCC) that choose outputs and product qualities under quality policies of their governments, we analyze the firms’ output-quality rivalry and the governments’ quality policies. We find that when the PCC’s state firm is partially or perfectly privatized, an increase in the quality subsidy of each country raises its firm’s output, product quality and market share, but decreases those of its rival firm, and both the quality policies of the CC and PCC are the subsidy policies. However, when the PCC’s state firm is completely nationalized, while a change in the quality subsidy of the CC has the similar effects as those mentioned above, a change in the quality subsidy of the PCC has no effect on the firms’ outputs, product qualities and market shares, which means that the optimal quality policy of the CC is the subsidy policy, but that of the PCC is to do nothing.
Highlights
During the past 30 years, the world economy has experienced two significant changes in many international industries
Modeling an international mixed duopoly composed of a private firm from a capitalist country (CC), and a state firm from a post-communist country (PCC) that choose outputs and product qualities under quality policies of their governments, we analyze the firms’ output-quality rivalry and the governments’ quality policies
We find that when the PCC’s state firm is partially or perfectly privatized, an increase in the quality subsidy of each country raises its firm’s output, product quality and market share, but decreases those of its rival firm, and both the quality policies of the CC and PCC are the subsidy policies
Summary
During the past 30 years, the world economy has experienced two significant changes in many international industries. By modeling third-country trade duopolies in which firms from developing and developed countries decide endogenously their product qualities and their governments implement quality policies for their domestic firms, Ishii (2013), Ishii (2014), and Taba & Ishii (2016) have analyzed firms’ output-quality decisions and governments’ product R&D policies Since their models have supposed international industries composed of only CCs’ private firms, it is not certain whether their propositions are true in international mixed industries composed of PCC’s state firms and CC’s private firms. When the PCC’s state firm is partially or perfectly privatized, an increase in the quality subsidy of each country raises its firm’s output, product quality, and market share, but decreases those of its rival firm It follows that both the optimal quality policies of the CC and PCC are the subsidy policies in this case.
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