Organizational Structure and the Choice of Price versus Quantity in a Mixed Duopoly

Abstract

We consider the choice of price/quantity by a public and a private firm in a mixed differentiated duopoly. First, we study the way in which the strategic choice of the market variable is affected by different given organizational structures (managerial or entrepreneurial) of the public and the private firm. Second, we investigate how the price/quantity choice interacts with the endogenous choice of the organizational structure, thus determining a subgame perfect equilibrium at which firms choose to behave as price-setters and to adopt a managerial structure

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

“…Further, in this paper, we show that in the endogenous selection of the strategic contracts of the public firm and the private firm, there exists no equilibrium market structure in the new delegation system where the public firm adopts the delegation contract on the basis of social welfare and the difference between consumer surplus and producer surplus whereas the private firm adopts the sales delegation contract, since the combination of the strategic contracts of the public and private firms does not coincide with each other, given the strategic contract of their respective rival firm. However, provided the strategic contractor the rival for both firms, it is noteworthy that their optimal strategic contracts are different from the new delegation system in this paper and the sales delegation case in Chirco et al (2014).…”

“…Thus, we realize that as the delegation parameter of the public firm becomes higher, the owner of the public firm gives more emphasis to consumer surplus than to producer surplus in all the four games. 9 As described below in detail, in the case wherein the owners of both the public and private firms provide to their managers the sales delegation contracts, Chirco et al (2014) showed that there does not exist any equilibrium market structure under the class of pure strategies on the strategic contracts of the public and private firms. Further, in this paper, we show that in the endogenous selection of the strategic contracts of the public firm and the private firm, there exists no equilibrium market structure in the new delegation system where the public firm adopts the delegation contract on the basis of social welfare and the difference between consumer surplus and producer surplus whereas the private firm adopts the sales delegation contract, since the combination of the strategic contracts of the public and private firms does not coincide with each other, given the strategic contract of their respective rival firm.…”

“…10 On the other hand, there are not many works on a mixed oligopoly comprising private firm(s) and public (consumer-friendly or socially responsible) firm(s), that consider the endogenous choice game of strategic contracts, that is, price contract or quantity contact until the emergence of Matsumura and Ogawa (2012) and Chirco, Colombo, and Scrimitore (2014). Matsumura and Ogawa (2012) and Chirco et al (2014) can be considered exceptions in that they tackled the endogenous choice game of strategic contracts in the context of a mixed oligopoly comprising a social welfare-maximizing public firm and an absolute profit-maximizing private firm.…”

“…10 On the other hand, there are not many works on a mixed oligopoly comprising private firm(s) and public (consumer-friendly or socially responsible) firm(s), that consider the endogenous choice game of strategic contracts, that is, price contract or quantity contact until the emergence of Matsumura and Ogawa (2012) and Chirco, Colombo, and Scrimitore (2014). Matsumura and Ogawa (2012) and Chirco et al (2014) can be considered exceptions in that they tackled the endogenous choice game of strategic contracts in the context of a mixed oligopoly comprising a social welfare-maximizing public firm and an absolute profit-maximizing private firm. Matsumura and Ogawa (2012) considered the endogenous choice of strategic contracts in a simple mixed duopolistic model composed of one entrepreneurial public firm and one entrepreneurial private firm without separation between ownership and management, and showed that price competition becomes a unique equilibrium market structure wherein the payoff of the public firm is higher in price competition than in quantity competition irrespective of the degree of product differentiation, that is, substitutable or complementary goods, produced by the two firms.…”

Cournot–Bertrand comparison in a mixed oligopoly

“…Haraguchi and Matsumura (2014) showed that this result holds, regardless of the nationality of the private firm Chirco et al (2014). showed that both firms choose a price contract when the organizational structure is endogenized.…”