Mixed Oligopoly, Privatization and R&D Subsidization

We develop a model of a mixed oligopoly to examine the role of R&D subsidies and evaluate the welfare effects of privatization. In solving the (n 1)-firms oligopoly model we make use of aggregative games techniques. Our analysis reveals that privatization reduces the optimal R&D subsidy, but increases aggregate R&D effort. Furthermore, privatization improves social welfare only when the number of firms is sufficiently large. In contrast to an output subsidy, implementing solely a subsidy to R&D does not lead to a ‘privatization neutrality theorem' or, ‘irrelevance result'