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Price–quality competition in a mixed duopoly

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  • Tilman Klumpp
  • Xuejuan Su

Abstract

We examine competition between a private and a public provider in markets for merit goods, such as education, healthcare, housing, recreation, or culture. The private firm provides a high‐price/high‐quality variety of the good and serves richer individuals, whereas the public firm provides a low‐price/low‐quality variety and serves poorer individuals. We first characterize the private competitor’s best response to changes in the public firm’s price and quality. This enables us to examine the distributional effects of policies that affect the price or quality of the public firm’s product. We then numerically characterize the public firm’s optimal provision policy, taking the private response into consideration. Our results have implications for the financing of publicly provided goods, and for whether additional resources, if available, should be spent on reducing the price or enhancing the quality of these goods.

Suggested Citation

  • Tilman Klumpp & Xuejuan Su, 2019. "Price–quality competition in a mixed duopoly," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(3), pages 400-432, June.
    • Handle: RePEc:bla:jpbect:v:21:y:2019:i:3:p:400-432
    DOI: 10.1111/jpet.12357
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    References listed on IDEAS

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    1. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
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    5. James M. Poterba, 1996. "Government Intervention in the Markets for Education and Health Care: How and Why?," NBER Chapters, in: Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America, pages 277-308, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Kolpin, Van & Stater, Mark, 2024. "The perverse equilibrium effects of state and federal student aid in higher education," Journal of Economic Behavior & Organization, Elsevier, vol. 217(C), pages 679-691.
    2. Iwan Bos & Ronald Peeters, 2023. "Price Competition in a Vertizontally Differentiated Duopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(3), pages 219-239, May.
    3. Ziad R. Ghandour, 2019. "Public-Private Competition in Regulated Markets," NIPE Working Papers 02/2019, NIPE - Universidade do Minho.
    4. Junichi Haraguchi & Toshihiro Matsumura, 2020. "Endogenous public and private leadership with diverging social and private marginal costs," Manchester School, University of Manchester, vol. 88(5), pages 699-730, September.
    5. Rune Stenbacka & Mihkel Tombak, 2020. "University‐firm competition in basic research and university funding policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 1017-1040, August.
    6. Rabah Amir & Evangelia Chalioti & Christine Halmenschlager, 2021. "University–firm competition in basic research: Simultaneous versus sequential moves," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(6), pages 1199-1219, December.

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • I00 - Health, Education, and Welfare - - General - - - General
    • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy

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