PRICE AND QUANTITY COMPETITION WITH ASYMMETRIC COSTS IN A MIXED DUOPOLY: A TECHNICAL NOTE

We consider a mixed duopoly in which private and public firms can choose to strategically set prices or quantities when the public firm is less efficient than the private firm. Thus, even with cost asymmetry, we obtain exactly the same result (i.e., Bertrand competition) of Matsumura and Ogawa (2012) if Singh and Vives’ (1984) assumption of positive primary outputs holds. However, compared to endogenous determination of the type of contract without cost asymmetry, our main finding is that in the wider range of cost asymmetry, different type(s) of equilibrium related to or not related to the limit‐pricing strategy of the private firm can be sustained. Thus, when considering an implication on privatization, we may overestimate the welfare gain of privatization because Cournot competition takes place after privatization even though cost asymmetry exists between firms. While the result of Matsumura and Ogawa (2012) holds true if the goods are complements, we find the novel results in the case of substitutes.     

Privatization when the public firm is as efficient as private firms

The literature on mixed oligopoly shows that when production costs are quadratic the public firm is privatized if the competition in the product market is high enough. Similarly, when the public firm is less efficient than private firms and the marginal costs of production are constant, the government privatizes the public firm if its efficiency is low enough. In this paper we analyze this issue assuming that the public firm maximizes the weighted sum of consumer surplus, private profit and the profit of the public firm. If all firms have the same marginal cost of production we obtain that for some value of parameters the government does not privatize the public firm regardless of how many private firms are competing in the product market. We also obtain that the consumer surplus can be lower in the mixed oligopoly than in the private oligopoly.     

Prices versus quantities in the presence of a second,unpriced, externality

This paper analyzes whether the presence of a second unregulated externality influences the choice between a price and a quantity instrument to address an externality. The author studies a situation in which two goods jointly generate an externality but only one of them is regulated. The two instruments differ because of the presence of uncertainty regarding the private value of the two goods. To ignore the unregulated good and apply Weitzman's classical result on the comparison of the slopes of marginal benefit and cost could be misleading because of the randomness of the unregulated good's quantity. Beside the relative slope of the marginal damage, the substitutability and the distribution of shocks play a role in the comparison. If there is a “cocktail effect” and the regulated and unregulated goods' quantities are negatively correlated, which occurs if they are substitutes, this reinforces the appeal of a price instrument. Furthermore, if the two goods are weak substitutes with correlated demands, the variance of the quantity of the unregulated good is larger under a quota than a tax, which further reinforces the appeal of the tax instrument.     

Managerial risk-taking incentives, product market competition and welfare

Managers’ compensation may increase with the variance of the firm's profits. This paper investigates how this affects their choice of strategic variables, and how that affects managerial compensation. The social welfare aspects of this interaction are analyzed in a duopoly setting with uncertain linear demand and linear marginal cost. Compared to a situation in which the managers’ compensation does not depend on the variance of profits, social welfare may be either higher, lower, or remain unaffected, depending on the slope of the marginal cost curve and whether the competing firms produce goods that are demand substitutes or complements.     

Over- and under-investment according to different benchmarks

In a two-stage oligopoly, with investment in the first stage and quantity or price competition in the second stage, there is a “Common Wisdom” Theorem which states that we find over-investment if the goods are substitutes and competition is in strategic substitutes, or if goods are complements and competition is in strategic complements, and that we find under-investment if we have complements and strategic substitutes or substitutes and strategic complements. The existing literature, however, lacks a proof of this theorem and, in particular, it lacks a systematic comparison of the different benchmarks for over- and under-investment. A “naive” benchmark is the cost efficient investment with respect to the subgame perfect (closed loop) equilibrium quantities. Alternative benchmarks (which are more often proposed) are the open loop equilibrium investment or the welfare maximizing investment. The chosen benchmark is critical because the Common Wisdom Theorem applies (under certain conventional conditions) only for the naive benchmark. The other two benchmarks give rise to subcases.     

The welfare effects of entry: the role of the input market

In a successive Cournot oligopoly, we show the welfare effects of entry in the final goods market with no scale economies but with cost difference between the firms. If the input market is very concentrated, entry in the final goods market increases welfare. If the input market is not very concentrated, entry in the final goods market may reduce welfare if the entrant is moderately cost inefficient. Hence, entry in the final goods market is more desirable if (1) the input market is very concentrated or (2) the cost difference between the incumbents and the entrant is either very small or very large. It follows from our analysis that entry increases the profits of the incumbent final goods producers if their marginal costs are sufficiently lower than the entrant’s marginal cost.     

Multiproduct Firms and Environmental Policy Coordination

The literature that analyzes the coordination of environmental taxes by governments considers that firms produce a single good at a single plant. However, in practice firms tend to produce several goods at various production plants (multiproduct firms). These firms may organize themselves in a centralized or decentralized fashion for purposes of decision-making: This affects their output and pollution levels. This paper sets out to analyze the coordination of environmental taxes considering multiproduct firms. We find that the organizational structure chosen by the owners of the firms depends on whether or not governments coordinate with one another in setting taxes, and on whether the goods produced are substitutes or complements. Social welfare is greater if a supranational authority sets taxes in all countries. In this case, joint welfare is never lower if the authority is constrained to set the same tax in all countries.     

PRICE AND QUANTITY COMPETITION IN A UNIONISED MIXED DUOPOLY: THE CASES OF SUBSTITUTES AND COMPLEMENTS*

We investigate a differentiated mixed duopoly in which private and public firms can choose to strategically set prices or quantities when unions are present. For the case of a unionised mixed duopoly, there exists a dominant strategy only for the public firm that chooses Bertrand competition irrespective of whether the goods are substitutes or complements; there is no dominant strategy for a private firm. Thus, we show that regardless of the nature of goods, social welfare under Bertrand competition is always determined in equilibrium, wherein Bertrand competition entails higher social welfare than Cournot competition. Moreover, our main results hold irrespective of the nature of goods, with the exception that when a sufficiently large parameter of complements is employed, the ranking of a private firm's profit is not reversed, which is in contrast to the standard findings.     

Keynesian Multipliers, Direct Crowding Out, and the Optimal Provision of Public Goods

This paper studies Keynesian multipliers in a macroeconomic model with monopolistic competition. We allow public and private consumption goods to be perfect substitutes in private utility. This enables us to study the effect of direct crowding out on the size of national income, profit and employment multipliers for a given rise in real public spending. A positive real national income multiplier is obtained if consumers value public consumption less than private consumption. In addition, we determine the effective marginal cost of public funds and the optimal provision of public goods, both in the short run and in the long run.     

A theory of user-fee competition

We develop a two-region model where the decentralized provision of spillover goods and other public expenditures is financed by means of user fees. We show that a decentralized solution tends to be inefficient. If the regional spillover goods are substitutes, user fees tend to be inefficiently low, whereas they tend to be inefficiently high if the spillover goods are complements.     

Time zones,shift working and international outsourcing

We build a trade model with two identical countries located in different time zones and one sector with intermediate differentiated goods produced in two successive stages. We introduce shift working disutility that raises night wage and firms that “virtually” outsource foreign labor. We found that firms only outsource if outsourcing costs are relatively low and shift disutility is high. When outsourcing occurs, it generates the highest level of welfare among production modes. Intermediate values of shift working disutility generate the lowest level of welfare. Outsourcing and domestic labor are substitutes at the firm level and complements at the economy level.     

THE EFFICIENCY OF THE STATE‐OWNED FIRM AND SOCIAL WELFARE: A NOTE

We consider a mixed market where a state‐owned firm competes with private firms. If the number of firms is exogenous, then a deterioration of the efficiency of the state‐owned firm might improve social welfare. This situation occurs when the state‐owned firm is inefficient and private firms are efficient. However, if the number of firms is endogenous, then a deterioration of the efficiency of the state‐owned firm must reduce social welfare.     

Competition and regulation with product differentiation

We consider a market for differentiated products, where one good is supplied by a regulated monopolist and competitive firms operate in an unregulated segment. In this setting we investigate the issue of whether to allow the monopolist to diversify into the unregulated segment by owning a competitive firm. Under asymmetric cost information, if goods are substitutes a diversified monopolist, which exaggerates its costs in the regulated segment to charge a higher regulated price, stimulates the demand for the competitive affiliate. This strengthens the firm??s incentive to inflate costs, since doing so generates a positive informational spillover to its profits in the competitive segment. Consequently, a regime of separation, which prevents the firm from operating in the competitive segment, is welfare-enhancing. Conversely, with complements, cost exaggeration in the regulated monopoly reduces the demand and harms profits in the competitive segment, and allowing the monopolist to diversify into the competitive segment therefore generates countervailing incentives, which weaken the firm??s interest in cost manipulation and improve social welfare.     

中国国有企业民营化绩效研究

本文研究中国国有企业民营化是否有效的问题。我们通过对国企民营化进程的考察来对此问题作出经验解答。根据世界银行一份对中国五个城市、覆盖六个行业的近300家国有企业(SOEs)1996—2001年间的调查数据,我们发现:(1)绩效较好的国有企业优先被民营化;(2)总体上来说,中国的民营化是富有成效的,尤其是提高了销售收入,降低了企业的成本,并最终导致企业盈利能力和生产率的大幅提高;而且在获得这些收益的同时并没有带来大规模的失业问题;(3)由民营机构控股、彻底民营化的企业比那些仍然是国有控股、部分民营化的企业绩效表现更好。     

The inefficiency of price quantity bargaining

In bargaining between a buyer and several sellers on prices and quantities, strategic inefficiencies arise. By reallocating quantities between agreements, the buyer can increase its share of the surplus. With two symmetric sellers producing substitutes, the quantity in the first agreement will be higher than the efficient quantity, and the quantity in the last lower, thus implying that sellers are strategically discriminated. When asymmetries are not too large and sellers produce substitutes, the buyer first agrees with the seller with the lowest marginal cost and only the most efficient order of agreement is an equilibrium outcome. When goods are complements, both equilibrium quantities are lower than the efficient levels.     

Mixed linear-nonlinear pricing with bundling

The practice of setting marginal prices below marginal costs is so common in telecommunications offerings that it can justifiably be labeled a stylized fact. In this paper, we present a stylized model that establishes conditions under which this practice is economically efficient and profit-maximizing. A multiproduct monopolist who sells some of his goods according to a nonlinear price schedule, while selling the remaining goods at linear prices, is said to use a mixed price structure. We develop a simple model to characterize welfare- and profit-maximizing mixed prices. It is shown that standard results obtained separately for linear and nonlinear prices do not hold when mixed prices are used. In particular, the marginal price facing the largest buyer can be above or below marginal cost. The result is shown to depend on whether the goods are substitutes or complements. Implications of these results for telecommunications prices are derived, and the intuition underlying our stylized fact is developed.     

Post-privatization corporate governance and firm performance: The role of private ownership concentration,identity and board composition

We examine and analyze the post-privatization corporate governance of a sample of 52 newly privatized Egyptian firms over a period of 10 years, from 1995 to 2005. We look at the ownership structure that results from privatization and its evolution; the determinants of private ownership concentration; and the impact of private ownership concentration, identity and board composition on firm performance. We find that the state gives up control over time to the private sector, but still controls, on average, more than 35% of these firms. We also document a trend in private ownership concentration over time, mostly to the benefit of foreign investors. Firm size, sales growth, industry affiliation, and timing and method of privatization seem to play a key role in determining private ownership concentration. Ownership concentration and ownership identity, in particular foreign investors, prove to have a positive impact on firm performance, while employee ownership concentration has a negative one. The higher proportion of outside directors and the change in the board composition following privatization have a positive effect on firm performance. These results could have some important policy implications where private ownership by foreign investors seems to add more value to firms, while selling state-owned enterprises (SOEs) to employees is not recommended. Also, the state is highly advised to relinquish control and allow for changes in the board of directors following privatization as changing ownership, per se, might not have a positive impact on firm performance unless it is coupled with a new management style.     

Market entry,privatization and bank performance in transition1

This paper examines how market entry and privatization have affected the margins and marginal costs of banks in the post‐communist transition. We estimate bank revenue and cost functions, allowing the estimated parameters to change over time. In the first sub‐period (1995–98), we find that privatized banks earned higher margins than other banks, while foreign start‐ups had lower marginal costs. In the third sub‐period (2002–2004), foreign banks remained low marginal cost service providers, while privatized domestic banks had the widest margins. Subtracting marginal costs from margins to calculate mark‐ups, an indication of demand for services, shows that initially privatized banks had the largest mark‐ups. However, by the third sub‐period, differences among private banks diminished. In comparison to private banks, state banks persistently under‐performed in controlling costs and attracting demand. Our evidence therefore indicates that foreign bank entry promoted lower costs and that privatization and market entry encouraged more demand for services.     

Optimal Indirect and Capital Taxation

We consider an environment in which agents' skills are private information and follow arbitrary stochastic processes. We prove that it is typically Pareto optimal for an individual's marginal benefit of investing in capital to exceed his marginal cost of doing so. This wedge is consistent with a positive tax on capital income. We also prove that it is Pareto optimal for the marginal rate of substitution between any two consumption goods to equal the marginal rate of transformation. This lack of a wedge is consistent with uniform taxation of consumption goods within a period.