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Mixed duopoly, location choice, and shadow cost of public funds

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  • Toshihiro Matsumura
  • Yoshihiro Tomaru

Abstract

We examine the relationship between equilibrium and efficient levels of product differentiation in a mixed duopoly, where a welfare‐maximizing public enterprise competes with a profit‐maximizing private firm. We introduce shadow costs of public funding (i.e., the excess burden of taxation). The profits of public firms obtained by the government reduce these costs. We find that in a mixed duopoly, the level of product differentiation is too low for social welfare. This result is in sharp contrast to the private oligopoly, where the level of product differentiation is too high. Finally, we show that when the shadow cost is high, privatizing the public enterprise improves welfare.

Suggested Citation

  • Toshihiro Matsumura & Yoshihiro Tomaru, 2015. "Mixed duopoly, location choice, and shadow cost of public funds," Southern Economic Journal, John Wiley & Sons, vol. 82(2), pages 416-429, October.
    • Handle: RePEc:wly:soecon:v:82:y:2015:i:2:p:416-429
    DOI: 10.4284/0038-4038-2013.153
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    References listed on IDEAS

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    Cited by:

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    2. Susumu Sato & Toshihiro Matsumura, 2019. "Dynamic Privatization Policy," Manchester School, University of Manchester, vol. 87(1), pages 37-59, January.
    3. Chuyuan Zhang & Sang‐Ho Lee, 2023. "Entry decision of a vertically integrated foreign firm with downstream subsidization and upstream privatization," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 94(1), pages 273-299, March.
    4. Suzuka Okuyama, 2023. "Behavior‐based price discrimination in the domestic and international mixed duopoly," Manchester School, University of Manchester, vol. 91(5), pages 482-505, September.
    5. Jiaqi Chen & Sang‐Ho Lee & Timur K. Muminov, 2022. "R&D spillovers, output subsidies, and privatization in a mixed duopoly: Flexible versus irreversible R&D investments," Bulletin of Economic Research, Wiley Blackwell, vol. 74(3), pages 879-899, July.
    6. Lee, Sang-Ho & Muminov, Timur K. & Tomaru, Yoshihiro, 2017. "Partial Privatization And Subsidization In A Mixed Duopoly: R&D Versus Output Subsidies," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 58(2), pages 163-177, December.
    7. Doori Kim & Sang‐Ho Lee, 2024. "Environmental policies with the excess burden of public funds and privatisation," Australian Economic Papers, Wiley Blackwell, vol. 63(2), pages 329-349, June.
    8. 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).
    9. 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.
    10. Xu, Lili & Matsumura, Toshihiro, 2023. "Market transparency in a mixed oligopoly," MPRA Paper 118415, University Library of Munich, Germany.

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