Partial Privatization and Subsidization in a Mixed Duopoly: R&D versus Output Subsidies

Lee, Sang-Ho and Muminov, Timur and Tomaru, Yoshihiro (2017): Partial Privatization and Subsidization in a Mixed Duopoly: R&D versus Output Subsidies. Published in: Hitotsubashi Journal of Economics , Vol. 58, No. 2 (1 December 2017): pp. 163-177.

Abstract

This study investigates R&D and output subsidies in a mixed duopoly with partial privatization. We show that an output subsidy is welfare-superior to an R&D subsidy policy, but the government has a higher incentive to privatize the public firm under the output subsidy than the R&D subsidy. However, when the government uses the policy mix of R&D and output subsidies together, it can achieve the first-best allocation, in which the degree of privatization does not influence output subsidies but influences R&D subsidies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Mixed duopoly; Partial privatization; R&D subsidy; Output subsidy
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise

References

Aanestad, M., E. B. Mork, M. Grisot, O. Hanseth, and M. C. Syvertsen. 2003. Knowledge as a barrier to learning: a case study from medical R&D. the 4th European Conference on Organisational Knowledge, Learning and Capabilities, Barcelona, Spain.

Bos, D. 1986. Public enterprise economics. Amsterdam: North-Holland.

Chen, Z., S.H. Lee and Xu, W., 2017, R&D efficiency in high-tech firms in China. Asian Economic Papers, forthcoming.

Conte, A., P. chweizer, A. Dierx and Ilzkovitz, F. 2009, An analysis of the efficiency of public spending and national policies in the area of R&D. Occasional Papers, European Commission.

De Fraja, G., and F. Delbono. 1989. Alternative strategies of a public firm in oligopoly. Oxford Economic Papers 41, 302–11.

Delbono, F., and V. Denicolo. 1993. Innovative activity: the role of a public firm. International Journal of Industrial Organization 11, 35–48

Gil-Moltó, M., Poyago-Theotoky, J. and Zikos, V., 2011. R&D subsidies, spillovers and privatization in mixed markets. Southern Economic Journal 78, 233–255.

Godø, H., Nerdrum, L., Rapmund, A., and Nygaard, S., 2003. Innovations in fuel cells and related hydrogen technology in Norway—OECD case study in the energy sector. NIFU Skriftserie No. 35.

Hashimzade, N., Khodavaisi, H., and Myles, G., 2007. An irrelevance result with differentiated goods. Economics Bulletin 8, 1–7.

Haruna1, S. and Goel, R.K. 2015. Output subsidies in mixed oligopoly with research spillovers. Journal of Economics and Finance (DOI 10.1007/s12197-015-9346-2)

Heywood, J.S. and Ye, G., 2009. Partial privatization in a mixed duopoly with an R&D rivalry. Bulletin of Economic Research 61, 165–178.

Ino, H. and Matsumura, T. 2010. What role should public enterprises play in free-entry markets? Journal of Economics 101, 213-230

Ishibashi, I. and Matsumura, T., 2006. R&D competition between public and private sectors. European Economic Review 50, 1347–1366.

Kesavayutha, D. and Zikos, V..2013. R&D versus output subsidies in mixed markets. Economics Letters 118, 293-296.

Kesavayutha, D., Lee, S.H. and Zikos, V., 2017. Merger and innovation incentives in a differentiated industry. Forthcoming in International Journal of the Economics of Business.

Leahu, D. and J.P. Neary. 1997. Public policy towards R&D in oligopolistic industries. American Economic Review 87, 642-662.

Lee, S.H. 1998. R&D spillovers, technology cartel and monopoly regulation. International Economic Journal 12, 77-88.

Lee, S.H. 1999. Optimal taxation for polluting oligopolists with endogenous market structure. Journal of Regulatory Economics 15, 293-308.

Lee, S.H. and Tomaru, Y. 2017. Output and R&D subsidies in mixed oligopoly. Operations Research Letters 45, 238-241.

Lee, S.H., Xu, L.L. and Chen, Z. 2013. Competitive privatization and tariff policies in an international mixed duopoly. Manchester School 81, 763-779.

Matsumura, T., 1998. Partial privatization in mixed duopoly. Journal of Public Economics 70, 473–483.

Matsumura, T. and Ogawa, A. 2012. Price or quantity in a mixed duopoly. Economics Letters 116(2), 174-177.

Matsumura, T. and Okumura, Y. 2013. Privatization neutrality theorem revisited. Economics Letters 118, 324-326.

Matsumura, T. and Shimizu, D., 2010. Privatization waves. Manchester School, 78, 609-625.

Matsumura, T. and Tomaru, Y. 2012. Market structure and privatization policy under international competition. Japanese Economic Review 63, 244-258.

Matsumura, T. and Tomaru, Y. 2013. Mixed duopoly, privatization, and subsidization with excess burden of taxation. Canadian Journal of Economics 46, 526–54.

Matsumura, T. and Tomaru, Y. 2015. Mixed duopoly, location choice, and shadow cost of public funds. Southern Economic Journal. 82, 416-429.

Pal, D., and M. D. White. 1998. Mixed oligopoly, privatization and strategic trade policy. Southern Economic Journal 65, 264–81.

Poyago-Theotoky, J., 1998. R&D competition in a mixed duopoly under uncertainty and easy imitation. Journal of Comparative Economics 26, 415–428.

Poyago-Theotoky, J., 2001. Mixed oligopoly, subsidization and the order of firms’ moves: an irrelevance result. Economics Bulletin 12, 1–5.

Scrimitore, M. 2013. Price or quantity? The strategic choice of subsidized firms in a mixed duopoly. Economics Letters 118(2), 337-341.

Tomaru, Y., Nakamura, Y. and Saito M. 2011. Strategic managerial delegation in a mixed duopoly with capacity choice: partial delegation or full delegation. Manchester School 79, 811-838.

Whalley, A.E. 2011, Optimal R&D investment for a risk-averse entrepreneur, Journal of Economic Dynamics and Control 35, 413-429.

White, M.D., 1996. Mixed oligopoly, privatization and subsidization. Economics Letters 53, 189–195.

Xu, L.-L. Lee, S.-H. and Wang, L.F.S., 2016. Free trade agreements and privatization policy with an excess burden of taxation, Japan and the World Economy, 37-38, 55-64.

Zikos, V. 2007. A reappraisal of the irrelevance result in mixed duopoly: A note on R&D competition. Economics Bulletin 12, 1–6.