Delegation in a mixed oligopoly: the case of multiple private firms

Abstract

Previous research examining mixed duopolies shows that the use of an optimal incentive contract for the public firm increases welfare and that privatization reduces welfare. We demonstrate that these results do not generalize to a mixed oligopoly with multiple private firms. We derive the optimal incentive contract for a public firm that weighs both profit and welfare and show that its use may either increase or decrease welfare depending on the number of private firms and the exact nature of costs. We also identify the conditions that determine whether or not privatizing the public firm facing an optimal incentive contract reduces welfare. Copyright © 2008 John Wiley & Sons, Ltd.

PARTIAL PRIVATIZATION IN A MIXED DUOPOLY WITH AN R&D RIVALRY

“…5 5 The literature on delegation echoes this in part as owners of the public firm provide managers an objective function weighting private profit (Barros, 1995; White, 2002; Heywood and Ye, 2008). …”

Endogenous choice of strategic incentives in a mixed duopoly with a new managerial delegation contract for the public firm

“…Therefore, we may expect that there exists some sort of strategic managerial delegation contract of the public firm such that there exists an equilibrium market structure(s) under the class of pure strategies of the strategic contracts, which is different from the two delegation contracts (i) and (ii). Related to this point, we may be able to regard the strategic managerial delegation contract of the public firm in the fashion of Heywood and Ye (2009), that is, the weighted sum of social welfare and absolute profit, with respect to delegation parameter for the public firm such that there exists an equilibrium market structure(s) under the class of pure strategies of the strategic contracts. Thus, although we should tackle an endogenous choice game of the strategic variables when the owner of the public firm uses the above delegation contract in the fashion of Heywood and Ye (2009), this seems difficult without an appropriate computer software.…”

“…41 As a strategic managerial delegation contract for the public firm, we can also consider a delegation contract equal to the weighted sum of social welfare and her/his absolute profit with respect to the delegation parameter à la Heywood and Ye (2009). However, since an investigation into an endogenous choice game on strategic contracts by the owners of both the public firm and the private firm is too difficult for us under the strategic delegation contract in Heywood and Ye (2009), we might have to look into computer simulation.…”

Partial Privatization in Upstream Mixed Oligopoly with Free Entry

“…In the long run, the government may liberalize the market with free entry 4 which leads to zero profit for all the private wholesalers. Substituting Equation (8) and Equation (9) into 0 i π = yields the following constraint: From Equation (18), we find that the impact of the optimal privatization degree or private retailer number on the optimal number of private wholesaler in the free entry upstream market. We express them respectively in the following equations: 3 2 2 2 2 2 2 5 5 1 2 1 2 2 1 2 2 3 4 2 3 0 2 2 From Equation (19), we also perceive that with free entry in the upstream market, the optimal private wholesaler number ( E n ) existing in the market is in positive correlation with both the optimal privatization degree ( λ ) and private retailer number ( m ).…”

“…In a closed-market homogeneous oligopoly, Matsumura and Kanda [2] demonstrated that partial privatization is 1 In fact, recently the consideration of partial privatization is applied to various issues in mixed oligopoly. See, for example, Jiang [6] on wage bargaining, Bárcena-Ruiz and Garzón [7] and Méndez-Naya [8] on merger, Heywood and Ye [9] on delegation etc. the optimal policy in the short-run; full nationalization is always optimal in the long run with free entry among private firms.…”