Mixed oligopoly and spatial agglomeration

Abstract We investigate a mixed market where a state‐owned welfare‐maximizing public firm competes against profit‐maximizing private firms. We use a circular city model with quantity‐setting competition. In contrast to a pure market case discussed by Pal (1998a) , spatial agglomeration of private firms always appears in equilibrium. All private firms locate at the same point, and the public firm locates at the opposite side. We also find that this equilibrium pattern of the location is second best provided that output of each private firm cannot be controlled by the social planner. JEL Classification: H42, L13
Oligopole mixte et agglomération spatiale Les auteurs examinent un marché mixte où une entreprise publique possédée par l'État et cherchant à maximiser le niveau de bien‐être est en concurrence avec des entreprises privées qui cherchent à maximiser leurs profits. On utilise un modèle de cité circulaire où la concurrence se fait en choisissant la quantité produite. En contraste avec le cas du marché parfait discuté par Pal (1998a), l'agglomération spatiale des entreprises privées paraît être en équilibre. Toutes les entreprises privées se localisent au même point, et l'entreprise publique se localise du côté opposé. Il appert que ce pattern d'équilibre de localisation est un équilibre de second ordre compte tenu du fait que la production de chaque entreprise privée ne peut être contrôlée par le planificateur social.     

Mixed pricing in oligopoly with limited monopoly

We analyze price competition between two brands. Buyers consist of switchers and two segments of customers with limited brand loyalty. We identify a unique symmetric mixed-strategy price equilibrium and find that competition is most relaxed when there exists some switchers.     

A public firm in a model of spatial duopoly with price discrimination

We visit the role of privatization in the location decision of firms in an industry where no firm can produce all varieties demanded. We demonstrate that the Nash equilibrium locations are socially optimal, in the presence of a publicly owned firm, notwithstanding the degree of privatization.     

Comparative statics for oligopoly: A generalized result

We perform comparative statics for a general model of asymmetric oligopoly and derive a concise formula for the response of one firm to a marginal change in its rival’s strategic variable, taking into account the responses of all other firms. We obtain the conditions under which the sign of this response coincides with that of the mixed second-order partial derivative of the firm’s payoff function. We then propose a distinction between gross and net strategic relationships (i.e., strategic substitute and complement).     

Equilibrium locations in a mixed duopoly with sequential entry in real time

We investigate a mixed duopoly model where a public firm and a private firm enter a market sequentially over an infinite time horizon, with and without uncertainty over the follower's entry date. We assume that there is a unit-length linear city and show that, if the public firm moves first, equilibrium location falls inside the second and third quartiles. The later the follower is expected to enter, the closer the two firms are. However, if the private firm acts first, it moves aggressively to locate at the middle point (one-half), forcing the public firm to locate nearer the periphery (one-sixth), to minimize consumers' transportation cost. In addition, social welfare is strictly greater when the public firm moves as the leader.     

Coalition-proof supply function equilibria in oligopoly

In an industry where firms compete via supply functions, the set of equilibrium outcomes is large. If decreasing supply functions are ruled out, this set is reduced significantly, but remains large. Specifically, the set of prices that can be sustained by supply function equilibria is the interval between the competitive price and the Cournot price. In sharp contrast, when the number of firms is above a threshold we identify (e.g., three if demand is linear), only the Cournot outcome can be sustained by a coalition-proof supply function equilibrium.     

Comparative dynamics in a productive asset oligopoly

We build a subgame perfect Nash equilibrium of a common property productive asset oligopoly and analyze separately the impact of a change in the implicit growth rate of the asset and a change in the number of firms exploiting the asset. We show that the steady state level of asset can be a decreasing function of the asset's implicit growth rate. This phenomenon arises when the initial stock of asset is below a certain threshold. In the short-run we show that firms’ exploitation rate can be a decreasing function of the implicit growth rate. We study the impact of a change in the number of firms that share access to the asset. Reducing the number of firms can result, in the long-run, in higher industry production. In the short-run, it can result in an increase of the industry's exploitation and a decrease of the level of the asset's stock.     

Mixed oligopoly, optimal privatization, and foreign penetration

This paper examines the impact of foreign penetration on privatization in a mixed oligopolistic market. In contrast to the simple framework of single domestic market with foreign entry by entry mode of foreign direct investment (FDI) or exports, our result shows that government should increase the degree of privatization along with increasing proportion of domestic ownership of multinational firms. Furthermore, we show that an increase in domestic ownership of multinational firms raises all domestic private firms' profit and social welfare, while it may either increase or decrease public firm's profit. With the aid of numerical example, intensive competition from private firms in general will enhance the degree of privatization gradually; in particular, the degree of privatization is lower in the presence of multinational firms.     

Competition and waiting times in hospital markets

This paper studies the impact of hospital competition on waiting times. We use a Salop-type model, with hospitals that differ in (geographical) location and, potentially, waiting time, and two types of patients: high-benefit patients who choose between neighbouring hospitals (competitive segment), and low-benefit patients who decide whether or not to demand treatment from the closest hospital (monopoly segment). Compared with a benchmark case of monopoly, we find that hospital competition leads to longer waiting times in equilibrium if the competitive segment is sufficiently large. Given a policy regime of hospital competition, the effect of increased competition depends on the parameter of measurement: Lower travelling costs increase waiting times, higher hospital density reduces waiting times, while the effect of a larger competitive segment is ambiguous. We also show that, if the competitive segment is large, hospital competition is socially preferable to monopoly only if the (regulated) treatment price is sufficiently high.     

Welfare effects of competitive lobbying efforts in international oligopoly markets

Conventionally, rent-seeking activities have been considered to deteriorate social welfare and to distort resource allocation. This paper examines whether rent-seeking behavior can improve social welfare by focusing on the welfare effects of firms’ competitive lobbying efforts when governments can impose market entry regulation against foreign firms. We demonstrate that competitive lobbying efforts can improve social welfare when such lobbying efforts are directed to reduce market entry barriers. In addition, social welfare can be maximized when the government shows the maximum sensitivity to the foreign firm's political contributions while maintaining competitive market structure. Moreover, it is shown that the dominant strategy for a domestic firm is to allocate more resources to R&D sectors while it is optimal for foreign firms is to exert more efforts in lobbying to reduce the market entry barriers when a government makes political economic approach in market entry regulations.     

On intrabrand and interbrand competition: The strategic role of fees and royalties

We examine oligopolistic markets with both intrabrand and interbrand competition. We characterize equilibrium contracts involving a royalty (or wholesale price) and a fee when each upstream firm contracts with multiple downstream firms. Royalties control competition between own downstream firms at the expense of making them passive against rivals. When the number of downstream firms is endogenous, each upstream firm chooses to have only one downstream firm. This result is in sharp contrast to previous literature where competitors benefit by having a larger number of independent downstream firms under only fixed fee payments. We discuss why allowing upstream firms to charge per-unit payments in addition to fixed fees dramatically alters their strategic incentives.     

Technology, agglomeration, and regional competition for investment

Abstract.  Competition for firms by region has a long-standing history, and the academic literature has debated whether such competition is efficient. We develop a model that explores technology development by firms facing regional competition for their investment and examine the endogenous determination of region policy, firm technology, and agglomeration externalities. We find a new source of inefficiency – regional competition leads firms to inefficiently distort their development and selection of production technology to improve their standing in the regional competition for their investment. We show that these inefficient firm decisions on technology and location can also weaken agglomeration externalities.     

Endogenous vertical restraints in international trade

This paper examines interbrand competition between a domestic and a foreign manufacturer who market their products through intermediaries. The contracts manufacturers offer these intermediaries are endogenous. In equilibrium contracts may specify exclusive territories (ET), depending on the degree of substitutability between products and the level and degree of transparency of trade barriers. Trade liberalization, through lower or more transparent barriers, may lead manufacturers to use ET, thereby substituting private anti-competitive arrangements for government-imposed barriers. This substitution may decrease competition and welfare, and thus create a role for competition policy in a freer trade environment.     

Platform intermediation in a market for differentiated products

We study a two-sided market where a platform attracts firms selling differentiated products and buyers interested in those products. In the subgame perfect equilibrium of the game, the platform fully internalises the network externalities present in the market and firms and consumers all participate in the platform with probability one. The monopolist intermediary extracts all the economic rents generated in the market, except when firms and consumers can trade outside the platform, in which case consumers obtain a rent that corresponds to the utility they would get if they did trade outside the platform. The market allocation is constraint-efficient in the sense that the monopoly platform does not introduce distortions over and above those arising from the market power of the differentiated product sellers. An increase in the number of retailers increases the amount of variety in the platform but at the same time increases competition. As a result, the platform lowers the firm fees and raises the consumer charges. In contrast, an increase in the extent of product differentiation raises the value of the platform for the consumers but weakens competition. In this case, the platform raises both the charge to the consumers and the fee for the firms.     

Nonprofits and public good provision: A contest based on compromises

Two competing nonprofits with ideologically distinct missions compete for donor funding to provide an indivisible public good in a population with heterogeneous preferences. This paper examines the extent to which (average) public values are undermined and nonprofits’ ideology compromised in a contractual game in which the right to provide the public good is the outcome of competition between nonprofits. We also scrutinize the roles of (i) cooperative versus competitive contracting, (ii) multiple public goods, (iii) enforceability of actions and (iv) observability of nonprofit costs in determining the equilibrium terms of the contract. In each case, the intensity of the ideological divide between the donor and the nonprofits jointly impact the degree to which compromises are made in terms of both the public's and nonprofit's missions, and the ability on the part of the donor to reap double (cost-saving and strategic) financial gains.     

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.