Would Excess Capacity in Public Firms Be Socially Optimal?
We analyse oligopolistic interactions between a welfare-maximizing public firm and a profit-maximizing private firm in a repeated game. We find that the public firm can hold excess capacity as a strategic punishment device to sustain a subgame perfect equilibrium which is welfare-superior to the static Nash equilibrium. Basically, potential punishment from the public firm in the dynamic game can make the self-interested private firm behave in the public interest. Furthermore, if capacity is endogenous, public excess capacity can occur in a welfare efficient equilibrium when the cost of public capacity investment is higher than that of private investment. Copyright 2001 by The Economic Society of Australia.
Year of publication: |
2001
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Authors: | Wen, Mei ; Sasaki, Dan |
Published in: |
The Economic Record. - Economic Society of Australia - ESA, ISSN 1475-4932. - Vol. 77.2001, 238, p. 283-90
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Publisher: |
Economic Society of Australia - ESA |
Saved in:
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