Endogenous Timing in a Mixed Duopoly: Price Competition

The endogenous order of moves is analyzed in a mixed duopoly for differentiated goods, where firms choose whether to set prices sequentially or simultaneously. It is shown that, in contrast to the private duopoly where firms set prices sequentially, in the mixed duopoly firms choose prices simultaneously. Moreover, the result obtained in the mixed duopoly under price competition differs from the one under quantity competition, since in the latter case decisions are taken sequentially.      

Optimal degree of privatization and the environmental problem

We determine the optimal degree of privatization in a mixed duopoly when the environmental problem exists. With regard to the ownership of the private firms, we analyze two cases: (h) the private firm is owned by domestic private investors and (f) it is owned by foreign private investors. A comparison of the two cases presents the following results. Partial privatization is always desirable in (h), and the optimal degree of privatization is independent of the degree of environmental damage. However, in (f), whether partial privatization is desirable or not depends on the degree of environmental damage: there are cases where full privatization or full nationalization is optimal.     

Partial Ownership For The Public Firm And Competition

This paper investigates the issue of partial ownership (partial privatization) of a state-owned public enterprise. We elaborate on the framework of Matsumura (1998) by allowing for managerial inefficiency, and show that under moderate conditions partial ownership is a reasonable choice of government in a monopoly market as well as in a mixed duopoly market, where a public firm competes with a profit-maximizing private firm. We also provide some economic rationale on the result that neither full privatization nor full nation-alization is optimum.     

Choosing price or quantity? The role of delegation and network externalities

We consider a differentiated duopoly and endogenise the firm choice of the strategy variable (price or quantity) to play on the product market in the presence of network externalities. We model this choice by assuming both competition between entrepreneurial (owner-managed) firms and competition between managerial firms in which market decisions are delegated from owners to revenue-concerned managers. While network externalities are shown not to alter the symmetric equilibrium quantity choice arising in the no-delegation case, sufficiently strong network effects allow us to eliminate the multiplicity of equilibria under delegation and lead to a unique equilibrium in which both firms choose price.     

STRATEGIC BUDGET CONSTRAINTS IN A UNIONIZED MIXED OLIGOPOLY

This paper considers the budget‐constraint problem where the government decides whether or not to impose a budget constraint on the public firm, assuming the public firm is less efficient than private firms. We find that imposing budget constraints on the public firm is the preferred choice because of the welfare‐improving effect. Our model suggests that the wage levels of the public firm can be lower or higher than those of private firms depending upon the degree of inefficiency. These results differ from Ishida and Matsushima's findings that in a unionized mixed duopoly, tight budget constraints can enhance social welfare when the public firm is as efficient as private firms.     

Mixed ownership in a mixed duopoly with differentiated products

We determine optimal privatization in a symmetric differentiated duopoly when the public firms do not bear the full cost of production and hence their objective functions differ from the government’s objective function. In the social optimum firms will generally have mixed ownership, and it will depend on the type of uncovered cost, the degree of substitutability of the two products and the output decision rule of the partially public firms. Different types of mixed duopoly emerge, ranging from both firms being partially privatized, to one being fully privatized. We also derive an optimal tax-subsidy scheme as a substitute for privatization.      

Quantity competition vs. price competition under optimal subsidy in a mixed oligopoly

This paper reconsiders the literature on the irrelevance of privatization in mixed markets within which both quantity and price competition are investigated under product differentiation. By allowing for partially privatization of a state-controlled firm, we explore competition under different timings of firms' moves and derive the conditions under which an optimal subsidy allows to achieve maximum efficiency. We show that, irrespective of the mode of competition, while the ownership of the controlled firm is irrelevant when firms play simultaneously, it matters when firms compete sequentially, requiring the leader to be publicly-owned for an optimal subsidy to restore the first-best. The paper also focuses on the extent to which a subsidy is needed to attain the social optimum in the considered scenarios, providing an ordering which highlights the subsidy equivalence between Cournot (Bertrand) private leadership and simultaneous Bertrand (Cournot) under duopoly, and the dominance of the former in oligopoly.     

Price vs quantity in a duopoly supergame with Nash punishments

We examine the endogenous choice between price and quantity behaviour in a duopoly supergame with product differentiation. We find that (i) if cartel profits are evenly split between firms, then only symmetric equilibria s obtained; (i) if instead the additional profits available through collusion are split according to the Nash bargaining solution, there are parameter regions where all subgame perfect equilibria are asymmetric, with firms colluding in price–quantity supergames.     

Media Plurality: Private versus Mixed Duopolies

In this paper, we analyze the level of media plurality in a market with two private news firms (private duopoly) and in a market with a private news firm and a public news firm (mixed duopoly). In the private duopoly news firms maximize profits. In the mixed duopoly, the private news firm maximizes profits, while the public news firm maximizes social welfare. We show that, in spite of the public news firm maximizing social welfare, neither media plurality nor social welfare needs to be higher under the mixed duopoly compared with the private duopoly. This will depend on the relation between the costs of adapting news to readers' political preferences, the intensity of the readers' political preferences, and the size of the advertising market.     

A generalized framework for endogenous timing in duopoly games and an application to price-quantity competition

This paper extends the analysis of duopoly market by distinguishing two types of competition: (i) the basic form of competition where each firm is unrestricted in its choice of price and quantity and (ii) the non-basic form of competition where firms’ strategic choices over price and quantity are limited a priori. Our analysis focuses on the former rather than the latter. Under a very general setting of concave industrial revenue and asymmetric convex costs, we show that each firm typically makes more profit in the subgame perfect Nash equilibrium (SPNE) of the leader-follower price-quantity competition, one of the basic competition forms, than in the SPNE of the leader-follower price competition and that each firm always makes more profit under simultaneous move price-quantity competition than under simultaneous move price competition. We establish a generalized framework for endogenous timing in duopoly games which is capable of embodying and overcoming the inconsistency across the existing three frameworks in the field. We highlight the advantages of a 3-period general framework.     

CHOOSING ROLES IN A DUOPOLY FOR ENDOGENOUSLY DIFFERENTIATED PRODUCTS*

The choice of the roles by firms in a vertically differenitated duopoly is analysed introducing a preplay stage where firms set the timing of moves, under the alternative assumptions of full or non full market coverage. Under the first, it turns out that the unique subgame perfect equilibrium entails simultaneous play in the quality stage, followed by sequential play in the price stage, where both firms would prefer to be price leader, contrarily to the results obtained by previous literature. Under partial market coverage, it is possible to analyse both price and quantity competition. In such a case, simultaneous play in both stages emerges as the optimal behaviour. Overall, contrarily to the conclusions reached by the previous literature, it is not possible to claim that the choice of the strategy space dominates the distribution of roles.     

The impact of equity ownership groups on investment: Evidence from Ukraine

We empirically investigate the impact of different ownership groups on companies’ investment in Ukraine with a novel dynamic investment model where investment is based on present and historical levels of profitability (market-to-book value of equity) and lagged investment. Groups include state, insider, non-domestic, financial and financial and industrial group (FIG) ownership. Contrary to the literature, we find that the past level of profitability significantly affects investment; the majority presence of and increases in state ownership have a negative impact on firms’ investment, as is the case for non-domestic and financial companies’ ownership. Insider and FIG ownership have no impact on investment. We explain the results by the extent of liquidity concerns (hard and soft budget constraints), measured by cash flow interacted with a dummy variable of majority ownership of the respective group, and the extent of asset stripping for the corresponding ownership group and relate them to over- and under-investment, and to the free cash flow or cash constraint hypothesis.     

Financial liberalisation,corporate governance and the efficiency of firms in Indian manufacturing

In this paper, we argue that the way in which a firm is financed will affect its efficiency. Firms obtaining finance from the government are likely to be less efficient than firms obtaining finance from banks or foreign financial institutions (FFIs). We analyse these issues by estimating a stochastic frontier for firms in seven manufacturing industries in India where these differences have been reinforced by financial de-regulation. Our results indicate that the government is generally less effective in monitoring the firms that it lends to than either banks or Indian Financial Institutions (IFIs), but neither of these institutions is particularly efficient either. Though the impact of FFIs on firm efficiency is insignificant, foreign ownership has a positive impact in a majority of the industries. Finally, likelihood ratio tests confirm that while the government and IFIs have a similar impact on firm efficiency, banks are quite distinct in a majority of industries.     

An Observable Delay Game with Unionised Managerial Firms

The endogenous order of moves is analysed in a unionised Cournot duopoly with managerial delegation and firm‐specific unions, where firms choose whether to set quantities sequentially or simultaneously. It is shown that, in contrast to the standard duopoly with profit‐maximising firms where both firms prefer to be the leader and thus simultaneously chosen quantities emerge as an endogenous equilibrium, a rich set of equilibrium outcomes may occur. In particular, the result of sequential choices, which reverses the conventional wisdom in regard to Cournot duopolies, emerges as the endogenous equilibrium when the union's wage orientation is sufficiently high.     

Emission taxes vs. environmental standards under partial ownership arrangements

This paper analyzes two pollution control instruments, uniform taxes and absolute standards, when polluting firms engage in partial ownership arrangements (POAs). Specifically, we examine the case of a bilateral POA between competing firms in which both hold equity shares on each other's profits as silent investments. We show that taxes and standards are equally efficacious in affecting the firms' output decisions and pollution emissions. Compared to the social planner's solution, a bilateral POA results in suboptimal outcomes with lower industrial output and consumer surplus. Firm profits are higher and environmental quality improves (since emissions decline), but social welfare decreases. We compare the equilibrium results associated with two different types of POAs (bilateral vs. unilateral), and examine their differences in welfare implications for the choice of policy options between taxes and standards.     

Minimum safety standard,consumers’ information and competition

This paper explores the effects of a standard influencing care choice with an endogenous market structure. Under duopoly, firms compete either in prices or in quantities. Firm(s) may increase the probability of offering safe products by incurring a cost. A standard may correct a safety underinvestment by firms. It is shown that the market structure (duopoly or monopoly) linked to the standard depends on the available information. Under perfect information about safety for consumers, the selected standard is always compatible with competition. The absence of standard due to safety overinvestment by firms only emerges under competition in quantities and a relatively low cost of safety improvement. Under imperfect information about safety for consumers, the selected standard often leads to a monopoly situation, essential for covering the cost of safety improvement. However, for relatively high values of this cost, a standard cannot impede the market failure arising from the lack of information.      

Delegation and Information Sharing in Cournot Duopoly

Information sharing in oligopoly has been analyzed by assuming that firms behave as a sole economic agent. In this paper it is assumed that ownership and management are separated. Contrary to the classical result of information sharing in a Cournot duopoly with private cost information, the paper shows that information sharing is no longer always a dominant strategy and expected consumer surplus is no longer always decreased. The paper determines the circumstances under which information is exchanged and analyzes its welfare consequences.      

Socially responsible firms and endogenous choice of strategic incentives

In this paper we are analyzing a mixed quantity-setting duopoly consisting of a socially concerned firm and a profit-maximizing firm. The socially concerned firm considers one group of stakeholders in its objective function and maximizes its profit plus a share of consumer surplus. Both firms have the option to hire a manager who determines the production quantity on behalf of the firm's owner. We find that in the subgame-perfect equilibrium of this game both firms hire a manager and delegate the production choice. If the unit production costs of the firms are similar, then the socially concerned firm has a higher market share and even higher profit. Interestingly, we observe that the relationship between the share of consumer surplus taken into account by the socially concerned firm and its profit is non-monotonic. As the share increases, the socially concerned firm's profit first increases and then decreases. The conclusion is that it pays off to take stakeholder interests into account, but not too much.     

Dynamics of technology sharing cartels and industrial structure under a rule of thumb

We analyse the market effects of different degrees of knowledge transfer in a duopoly in which firms act following a rule of thumb. Three regimes are compared: the technology sharing cartels, the duopoly with spillovers, and the proprietary regime. We show the industrial structure evolution of these three regimes under different cost configurations when firms behave myopically, revising their production plan in each period according to the marginal profit previously gained. The analysis is conducted in a discrete setting using numerical simulations of finite difference systems. We show under which conditions knowledge transfer is beneficial to the system and can prevent market monopolisation.     

Joint ownership and interconnection pricing in network industries

This paper investigates a vertical market structure called joint ownership, where a monopolistic upstream firm is jointly owned and operated by competing downstream firms. As such, a common interconnection price to an upstream bottleneck is determined by bargaining among the downstream firms. We show that (1) joint ownership can be superior to the other ownership structures by overcoming vertical externality of double marginalization; (2) collusive outcomes, however, may arise surrounding the setting of common interconnection price; (3) an overall performance of joint ownership depends crucially upon how equity shares are initially distributed and which bargaining rules are employed; and finally (4) a policy measure to promote downstream competition may have ambiguous consequences under joint ownership. Some managerial and political implications in implementing joint ownership in practice are also provided.