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Should Public Sectors Be Complements of Private Sectors?

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  • Ikuo Ishibashi
  • Noriaki Matsushima

Abstract

We discuss competition between high-quality private service providers that maximize their own profits and a low-quality public service provider that maximizes social surplus. Two heterogeneous consumer groups exist: those who demand only high-quality services and those who care little whether services are high- or low-quality. The setting reflects the fact that some consumers feel dissatisfaction with public service providers. We show that, under certain conditions, social welfare is smaller when there is a public service provider than when there is not. The result holds even though the efficiency of the public service is equal to that of the private services.

Suggested Citation

  • Ikuo Ishibashi & Noriaki Matsushima, 2012. "Should Public Sectors Be Complements of Private Sectors?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(4), pages 712-730, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201212)168:4_712:spsbco_2.0.tx_2-
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    Cited by:

    1. Kangsik, Choi, 2011. "Cournot and Bertrand competition with asymmetric costs in a mixed duopoly," MPRA Paper 34100, University Library of Munich, Germany.
    2. Cong Pan, 2020. "Competition between branded and nonbranded firms and its impact on welfare," Southern Economic Journal, John Wiley & Sons, vol. 87(2), pages 647-665, October.
    3. Kangsik, Choi, 2012. "Cournot and Bertrand competition with asymmetric costs in a mixed duopoly revisited," MPRA Paper 37704, University Library of Munich, Germany, revised 28 Mar 2012.

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    More about this item

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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