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Partial Privatization Upstream with Spatial Price Discrimination Downstream

Author

Listed:
  • John S. Heywood

    (University of Wisconsin-Milwaukee)

  • Shiqiang Wang

    (Chinese Academy of Social Sciences, CASS)

  • Guangliang Ye

    (Hainan University)

Abstract

We consider a mixed duopoly selling to downstream retailers that are engaged in spatial price discrimination. We show that the optimal degree of privatization falls below—often far below—the level that is implied in the absence of the vertical chain. The size of this reduction in privatization reflects the extent to which increasing transport cost (differentiation) increases double marginalization in contested market regions—as opposed to simply reducing demand in uncontested market regions. Moreover, we show that despite higher costs of production, a fully public monopoly upstream can be welfare-superior to the optimal mixed duopoly. This would not be the case in the absence of downstream differentiation.

Suggested Citation

  • John S. Heywood & Shiqiang Wang & Guangliang Ye, 2021. "Partial Privatization Upstream with Spatial Price Discrimination Downstream," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(1), pages 57-78, August.
    • Handle: RePEc:kap:revind:v:59:y:2021:i:1:d:10.1007_s11151-020-09804-9
    DOI: 10.1007/s11151-020-09804-9
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    References listed on IDEAS

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    Cited by:

    1. Okuyama, Suzuka, 2021. "Behavior-based Price Discrimination in the Domestic and International Mixed duopoly," MPRA Paper 110206, University Library of Munich, Germany.
    2. Wu, Xiaoting & Mukherjee, Arijit & Zeng, Chenhang, 2024. "Privatization and innovation in a vertical structure," China Economic Review, Elsevier, vol. 84(C).
    3. Heywood, John S. & Wang, Zerong & Ye, Guangliang, 2023. "Spatial price discrimination in a mixed duopoly input market," Regional Science and Urban Economics, Elsevier, vol. 102(C).
    4. Suzuka Okuyama, 2022. "Behavior-based Price Discrimination in the Domestic and International Mixed duopoly," ISER Discussion Paper 1179, Institute of Social and Economic Research, Osaka University.

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    More about this item

    Keywords

    Differentiation; Mixed oligopoly; Privatization; Vertical chain;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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