Government-leading welfare-improving collusion

Haraguchi, Junichi; Matsumura, Toshihiro

doi:10.1016/j.iref.2017.11.005

International Review of Economics & Finance

2018

DOI: 10.1016/j.iref.2017.11.005

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Government-leading welfare-improving collusion

Junichi Haraguchi

Toshihiro Matsumura

Abstract: We discuss government-leading welfare-improving collusion in a mixed duopoly. We formulate an infinitely repeated game in which a welfare-maximizing firm and a profitmaximizing firm coexist. The government proposes welfare-improving collusion and this is sustainable if both firms have incentives to follow it. We compare two competition structures-Cournot and Bertrand-in this long-run context. We find that Cournot competition yields greater welfare when the discount factor is sufficiently large, whereas Bertran… Show more

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Cited by 11 publications

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“… If we consider an infinitely repeated game, further efficient outcome might be achieved by cooperation between public and private firms. However, as Haraguchi and Matsumura () showed, the first best is never achieved in such a game. …”

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confidence: 99%

Dynamic Privatization Policy

Satô

Matsumura

2018

The Manchester School

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This study formulates a two-period model of mixed oligopoly in which the government privatizes a state-owned public firm over multiple periods. We introduce the shadow cost of public funding (i.e., the excess burden of taxation). The government is concerned about both the total surplus and the revenue obtained from the privatization of the public firm. We find that the government may or may not increase the degree of privatization over time depending on the competitiveness of the product market and nationality of private competitors. The government increases the degree of privatization over time if the product market is competitive and the foreign ownership share in private firms is low. Although it adjusts its privatization policy over time, this harms welfare. In addition, this distortion in the ex post incentive leads to too low a degree of privatization in the first period. * Manuscript received 26.8.17; final version received 6.3.18. † We are grateful to Takeshi Ebina, Akifumi Ishihara, Hirokazu Ishise, Noriaki Matsushima, Cong Pan, Naoki Wakamori and the participants of seminars at Shinshu University and the University of Tokyo for their helpful comments. We are indebted to two anonymous referees for their valuable and constructive suggestions. This work was supported by the Japan Society for the Promotion of Science (JSPS) KAKENHI (15K03347) and the Zengin Foundation for Studies on Economics and Finance. We are responsible for any remaining errors.

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confidence: 99%

Dynamic Privatization Policy

Satô

Matsumura

2018

The Manchester School

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Welfare‐Reducing Integration Under Emission Taxes and Endogenous Competition Mode

Cho,

Lee,

Lee

2024

Manage Decis Econ

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This study examines asymmetric supply chain competition between integrated and non‐integrated supply chains under emission taxes when firms choose competition mode in the final goods market endogenously. We find that higher emission taxes may lead the non‐integrated downstream firm to adopt aggressive pricing to induce its upstream firm to lower prices, leveling competition with an integrated one. When the non‐integrated chain integrates, however, quantity contracts become dominant strategies, which might distort welfare under lower emission taxes if both environmental damage and product substitutability are sufficiently high. Our finding indicates the welfare‐reducing effects of government interventions post‐integration when emission tax policy and endogenous competition mode are relevant.

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Comparing welfare and profit in quantity and price competition within Stackelberg mixed duopolies

Hirose

Matsumura

2018

J Econ

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We compare welfare and profits under price and quantity competition in mixed duopolies, wherein a state-owned public firm competes against a private firm. It has been shown that price competition yields larger profit for the private firm and greater welfare if the two firms move simultaneously, regardless of whether the private firm is domestic or foreign. We investigate welfare and profit rankings under Stackelberg competition. Under public leadership, the profit and welfare rankings have common features with the simultaneous-move game, regardless of the nationality of private firms. By contrast, under private leadership, the result depends on the nationality of the private firm. When the private firm is domestic, welfare is greater under quantity competition, while the result is reversed when the private firm is foreign. However, regardless of nationality, private firms earn more under price competition. Introducing the nonnegative profit constraint in the public firm improves welfare and increases the private firm's profit, and price competition yields a higher profit for private firms regardless of nationality and which firm is the leader. However, this constraint affects the welfare ranking. Under private leadership, quantity competition yields greater welfare regardless of the nationality of the private firm. These results indicate that profit ranking is fairly robust to the time structure in mixed Stackelberg duopolies, but welfare ranking is not.

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Government-leading welfare-improving collusion

Cited by 11 publications

References 43 publications

Dynamic Privatization Policy

Dynamic Privatization Policy

Welfare‐Reducing Integration Under Emission Taxes and Endogenous Competition Mode

Comparing welfare and profit in quantity and price competition within Stackelberg mixed duopolies

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