Public Stackelberg Leadership in a Mixed Oligopoly with Foreign Firms

Abstract

This is the first paper to consider a mixed oligopoly in which a public Stackelberg leader competes with both domestic and foreign private firms. The welfare maximizing leader is shown to always produce less than under previous Cournot conjectures. Introducing leadership also alters previous public pricing rules resulting in prices that may be either greater than or less than marginal cost depending on the relative number of domestic firms. Furthermore, entry of a foreign firm will increase welfare only when the relative number of domestic firms is small, but that share is shown to be larger than has been indicated without leadership. Unlike previous models, the influence on public profit of a foreign acquisition is ambiguous and is related to the relative number of domestic firms. Finally, the consequences of privatization are shown, for the first time, to depend on the relative number of domestic firms.JEL: D43, L10, L13

Privatization in the presence of foreign competition and strategic policies

“…However, the relationship between state ownership and FDI in the presence of environmental pollution is often considered to be important as FDI is often considered to be a source of environmental degradation in the host countries. 13 However, similar results can be obtained when the model is extended to include environmental pollution as a by-product of production. 14 In this case as well, privatization by the domestic country increases a foreign …rm's incentive for FDI and the threat of FDI reduces the optimal degree of privatization compared to the situation of no FDI.…”

“…If the foreign …rm exports, domestic welfare is given by (6), where q x p is given by (14), q x m is given by (16) and t x h is given by (13). Substituting the respective values yields:…”

Strategic behaviors on privatization between regions

“…Among them are Fjell and Pal (1996), Pal and White (1998), Fjell and Heywood (2002), Bárcena-Ruiz and Garzón (2005), Sepahvand and Cornes (2007), Fujiwara (2006), and Han and Ogawa (2008). In particular, Bárcena-Ruiz and Garzón (2005) analyze the strategic interactions between governments by considering the inefficiency of public firms, and thus, suggest that both governments take privatization (no privatization) if the marginal costs of public firms are high (low) enough, and only one government chooses privatization if the marginal cost is on the intermediate value.…”

Price-Setting Mixed Duopoly Models with Complementary Goods

“…However, most studies consider quantity competition, such as [1][2][3][4][5][6][7][8][9][10][11][12][13][14][15][16]. 1 Some studies consider mixed markets with price competition, such as [22][23][24][25][26].…”