Endogenous Cost Differentials between Public and Private Enterprises: A Mixed Duopoly Approach
We investigate a mixed duopoly, where a state-owned welfare-maximizing public firm competes against a profit-maximizing private firm. We use a Hotelling-type spatial model which represents product differentiation. We endogenize production costs by introducing cost-reducing activities. We show that the private firm's cost becomes lower than the public firm's because the private firm engages in excessive strategic cost-reducing activities. Even though each firm's cost is heterogeneous, the locations of the firms are socially efficient, given the cost differentials. Privatization of the public firm would improve welfare because it would mitigate the loss arising from excessive cost-reducing investments. Copyright (c) The London School of Economics and Political Science 2004.
Year of publication: |
2004
|
---|---|
Authors: | Matsumura, Toshihiro ; Matsushima, Noriaki |
Published in: |
Economica. - London School of Economics (LSE). - Vol. 71.2004, 284, p. 671-688
|
Publisher: |
London School of Economics (LSE) |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Should firms employ personalized pricing?
Matsumura, Toshihiro, (2013)
-
Market competition, R&D and firm profits in asymmetric oligopoly
Ishida, Junichiro, (2010)
-
Airport privatization and international competition
Matsumura, Toshihiro, (2010)
- More ...