Mixed Duopoly Research Articles

Privatization in mixed duopoly with vertical differentiation: Price versus quantity competition

AbstractIn this paper, we investigate the issue of privatization in a mixed duopoly with vertical differentiation under Cournot and Bertrand competition. The public firm is assumed to produce a lower‐quality product with lower production costs. We find that under both Bertrand and Cournot competition, privatization is socially desirable (undesirable) if the quality level of the private firm is sufficiently high (low). However, if the quality of the private firm is intermediate, Bertrand and Cournot competition yields opposite policy implications: privatization is desirable under Bertrand competition while undesirable under Cournot competition. Therefore, under Bertrand competition, privatization is more likely to be welfare‐improving than under Cournot competition.

Endogenous choice of environmental corporate social responsibility in a mixed duopoly

AbstractThis paper constructs green managerial delegation contracts in a mixed duopoly wherein either or both public and private firms may adopt environmental corporate social responsibility (ECSR). We demonstrate that the public (private) firm owner positively (negatively) adopts ECSR incentives under Cournot, whereas the incentives are reversed under Bertrand. We also examine an endogenous ECSR choice game and discover that unilateral ECSR adopted by a public firm appears under Cournot, whereas bilateral ECSR where both firms adopt ECSR incentives appears under Bertrand. Our findings show that coordination of competition mode may be harmful to society if both marginal damage and product substitutability are sufficiently high.

Licensing of a product innovation by an outside innovator to a Stackelberg duopoly

ABSTRACT We examine the optimal strategy of an outside innovator owning a quality-improved product when licensing it to a Stackelberg duopoly. We show that only a single licence is granted, regardless of whether there is quantity or price competition in the marketplace. However, both the licensee and contractual terms in each context differ. Under quantity competition, the licence is granted to the market-leading firm by means of a non-distorting contract, whereas under price competition the licence is granted to the market-following firm by means of a distorting two-part tariff contract with per-unit royalty. From a welfare perspective, exclusive licensing is beneficial in both contexts compared to the pre-licensing scenario, although under price competition, consumers can be harmed if the innovation is small. Finally, licensing leads price competition to yield a less efficient outcome than quantity competition due to greater market collusion. Licensing by means of three-part tariff contracts is also discussed, as well as licensing when potential licensees operate as a mixed duopoly.

Endogenous timing in a mixed duopoly when a public firm supplies its private competitor

ABSTRACT We examine endogenous timing in a quantity setting mixed duopoly where a public firm, in addition to selling a good in the retail market, manufactures an input required to produce this good and supplies it to its private retail competitor. In this setting, the traditional separation between suppliers and retailers fails to hold, a situation commonly observed in many markets. We focus on the case of regulated input prices, which often appear under such circumstances, and consider both an exogenous input price and one optimally chosen by a regulator. The results may be substantially different from those obtained under conventional assumptions about the relationship between suppliers and retailers. In particular, for a wide range of parameter values early simultaneous moves are observed in equilibrium.

Mixed duopoly in two‐sided markets

AbstractThis paper considers a mixed duopoly two‐sided market of platforms in which a private firm competes with a public firm in a linear city model with fixed demand of full coverage. We examine whether prices of platforms are lower in the mixed duopoly market than in the standard pure duopoly market in which two private firms compete. We show that introducing a public competitor may or may not induce lower prices of the private platform than introducing a private firm, depending on the quality of the public platform service. In particular, if the quality of the public platform is superior, the prices of the platforms are lower than when it competes with the private rival, whereas they are higher if the quality is lower. We also show that the private firm invests more than the public firm. This has the policy implication that maintaining lower platform prices by introducing a competing public platform will not be sustainable in the long run.

Corporate social responsibility and tariff policy in a differentiated mixed duopoly

AbstractIn this paper, we assume that the domestic public firm competes in the market with a foreign private firm that cares about consumer surplus and the domestic government imposes tariffs on foreign firm. We aim to analyze the influence of the corporate social responsibility (CSR) level of foreign firm on privatization and tariff policy. It shows that if the government implements a privatization policy for the domestic public firm, the optimal degree of privatization decreases in the CSR level of foreign firm. Under the optimal privatization policy, if the product differentiation is relatively small, the equilibrium tariff increases in the CSR level; if the product differentiation is relatively large, the equilibrium tariff decreases in the CSR level; if the product differentiation is moderate, the relationship between the equilibrium tariff and CSR level is an inverted U‐shape. We further consider the policy implications under sequential moves of firms.

Research spillovers and partial passive ownership by a public enterprise

ABSTRACT This study examines the impacts of partial passive ownership (PPO) by a public enterprise on firm’s research and development (R&D) decisions in the presence of research spillovers. We find that PPO always increases welfare in a mixed duopoly, while it only increases (decreases) welfare in a private duopoly when the spillover rate is high (low). We also show that privatisation policy can increase (decrease) welfare when both PPO and spillover rates are high (low) under R&D competition. In addition, we examine research joint ventures (RJVs) and find that welfares in both mixed and private duopolies under RJVs are always higher than those under R&D competition, while privatisation policy always increases welfare regardless of PPO and the organisational form of RJVs. Therefore, the effects of PPO by a public enterprise crucially depend not only on spillovers rate, but on the type of RJVs formation and the implementation of privatisation policy.

A timing game in a mixed duopoly

This paper investigates a timing game in a mixed duopoly, whereby a relatively inefficient state-owned firm maximizing the linear combination of its profit and social welfare competes against a relatively efficient, profit-maximizing private firm over the timing of entry. We find that the incentives for firms to enter the market depend on the degrees of privatization of a state-owned firm and of the cost asymmetry between the two firms. We also provide welfare analysis by comparing the equilibrium timing of entry with the socially optimal one. When the two firms’ products are perfect substitutes, the socially optimal timing of both firms entering the market can be achieved if the state-owned firm is fully public.

Spatial price discrimination in a mixed duopoly input market

We uniquely examine an upstream mixed duopoly engaging in spatial price discrimination across a continuum of downstream markets. The monopoly firms in those markets face elastic final demand creating double marginalization. The upstream public firm faces a cost disadvantage relative to its private rival that declines as it is partially privatized. We show that the fully public firm improves social welfare relative to a private duopoly when it is not overly inefficient and when differentiation is sufficiently large. We also show that whenever this is the case, there exists an optimal degree of partial privatization that better aligns the trade-off between production costs and pricing distortions.

Behavior‐based price discrimination in the domestic and international mixed duopoly

AbstractThis study investigates mixed markets in which a social welfare‐maximizing public firm and a private firm engage in behavior‐based price discrimination (BBPD). A total of two cases are considered: one where domestic shareholders completely own the private firm and one where foreign shareholders completely own it. In the domestic mixed duopoly, BBPD is irrelevant from the viewpoint of domestic social welfare. This is because poaching does not occur. In the international mixed duopoly, BBPD improves domestic social welfare, as BBPD reduces the outflow of the private firm's profit to foreign shareholders. In both cases, privatization is more undesirable under BBPD than uniform pricing.

When social assistance meets market power: A mixed duopoly view of health insurance in the United States

AbstractWe develop a mixed duopoly model with quality‐differentiated products. The public firm offers its product for free to eligible individuals, while the private firm chooses its product quality and price to maximize profit. We calibrate the model to health insurance for the U.S. working‐age population, with Medicaid being the public firm. We examine distributional implications of policies that expand Medicaid to various degrees. Despite potentially significant inefficiency of Medicaid, its expansion is welfare improving. Central to these findings is the significant market power of the private firm when left unchecked, which is increasingly disciplined as more individuals become Medicaid eligible.

Environmental taxes under mixed duopoly: The roles of privatization and foreign eco-technology

Governments usually impose environmental taxes to control pollution. This research theoretically investigates the welfare effect of privatization when a public firm and a private firm buy an abatement technology from a foreign eco-technology innovator in response to an environmental tax levied by the domestic government. Our results show if the environmental tax rate is sufficiently low (high), then privatization can lead to a lower (higher) eco-technology price, and thus privatization is desirable (undesirable) for social welfare. Moreover, while privatization clearly increases profits for both firms, it reduces consumer surplus and environmental tax revenue. Before privatization, higher environmental tax rates do not necessarily reduce total emissions. After privatization, higher environmental tax rates always reduce total emissions. We also find that privatization decreases total industry emissions when the harmfulness of emissions is low. However, when the harmfulness of emissions is high, the relationship between changes in total industry emissions after privatization and the environmental tax rate is not monotonic.

A facility location problem in a mixed duopoly on networks

This paper studied a facility location problem (FLP) between a public firm and a private firm on a network space. Diverse situations are presented, and the corresponding mathematical formulations are modeled by implementing the optimization approach. The relationships between the models are then analyzed mathematically, showing the existence of complementarity and dominance. Considering the increasing interest in electric vehicle (EV) charging stations and the relevance to our models, computational experiments for a charging station location problem (CSLP) follow this in order to validate the presented models and verify the analyses. The trade-off between the stakeholders’ objectives is demonstrated, providing policy implications for the public sector and managerial insights for private investors.

Workers’ firm in mixed duopoly

Workers’ firm in mixed duopoly

Mixed Duopoly, Privatization and Subsidization: Complementary Goods

Mixed Duopoly, Privatization and Subsidization: Complementary Goods

Environmental tax policy and optimal privatization in a polluting mixed duopoly

AbstractWe investigate the optimal privatization policy in a polluting mixed duopoly when environmental taxes are used. Firms adopt clean technology to reduce emissions. We consider the situation of exogenous tax and find that (i) partial privatization is always optimal under low marginal damage, while full nationalization may be optimal under high marginal damage; (ii) the optimal privatization level always increases with tax rate under low marginal damage, while it may decrease with tax rate under high marginal damage. As an extension, we consider the endogenous tax situation and show that full nationalization may be optimal under sufficiently high marginal damage.

Port Competition and Cooperation Under Emission and Privatization

The study considers the competition and cooperation between mixed duopoly ports with service differentiation when both emission tax and partial privatization policies are implemented together. By developing three-game models between government and port enterprises, this paper first studies and compares, under different game scenarios, the optimal emission tax for mixed duopoly ports and privatization level for a semipublic port, as well as the optimal output (or pricing) and emission reduction of semipublic and private ports. Moreover, the profit and utility of the two ports, environment damage, consumer surplus, and social welfare are also compared, and the impacts of technology spillover for emission reduction and service differentiation on the decision-making of the government and port enterprises are discussed. We find that the optimal emission tax under a strategic cooperation scenario can reach a higher level, then the government needs more efforts to protect the environment. In addition, although port cooperation is conducive to maximizing social welfare and increasing port throughput, it harms the profitability of the two ports.

Chaotic Dynamics in Joint Price QoS Game with Heterogeneous Internet Service Providers

This paper tries to investigate the complex characteristics of the communication market where Internet service providers (ISP) lease network access services and compete to serve a large pool of subscribers. For this purpose, we analyze the dynamics of a mixed duopoly game with two decision parameters: price and quality of service (QoS). We calculate and discuss the stability of each equilibrium solution by using the nonlinear system. A numerical simulation is used to show the flip bifurcation to chaos by the decisions of ISPs with different statuses. We discovered that the Nash equilibrium loses stability when the speed of adjustment and transmission fee increase. We show that the system parameter changes the stability of the communication market. In addition, we use a control method to keep the communication market in a stable state.

Mixed duopoly under hotelling with convex production costs

Mixed duopoly under hotelling with convex production costs

Environmental awareness of the private firm and optimal privatization in a mixed duopoly

This study investigates the optimal privatization policy in a mixed duopoly where the private firm may have environmental awareness. It finds that if the marginal environmental damage is low (high), partial privatization is optimal and its optimal level increases (decreases) with the degree of the private firm's environmental awareness. However, if the marginal environmental damage is moderate, full nationalization or full privatization can be optimal and the optimal privatization level does not depend on the degree of the private firm's environmental awareness. This study highlights the role that environmental pollution and private firms' environmental awareness play in determining optimal privatization policy.