Government-Leading Welfare-Improving Collusion

Haraguchi, Junichi and Matsumura, Toshihiro (2017): Government-Leading Welfare-Improving Collusion.

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 profit-maximizing 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 Bertrand competition is better when the discount factor is small.

• Item Type: MPRA Paper
• Language: English
• Keywords: repeated game, public collusion, Cournot-Bertrand welfare comparison
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L4 - Antitrust Issues and Policies > L41 - Monopolization ; Horizontal Anticompetitive Practices

References

Abreu, Dilip, 1988. On the theory of infinitely repeated games with discounting. Econometrica 56(2), 383-396.

Barcena-Ruiz, Juan Carlos, 2007. Endogenous timing in a mixed duopoly: price competition. Journal of Economics 91(3):263-272.

Cato, Susumu, and Toshihiro Matsumura. 2015. Optimal privatization and trade policies with endogenous market structure. Economic Record 91(294), 309-323.

Chirco, Alessandra and Scrimitore, Marcella, 2013. Choosing price or quantity? The role of delegation and network externalities. Economics Letters, 121(3):482-486.

Colombo, Stefano, 2016. Mixed oligopoly and collusion. Journal of Economics, 118(2):167-184

Corneo, Giacomo and Olivier Jeanne, 1994. Oligopole mixte dans un marche commun. Annales dEconomie et de Statistique 33:73-90.

Deneckere, Raymond, 1983. Duopoly supergames with product differentiation. Economics Letters 11(1-2), 37-42.

Dixit, Avinash K., 1979. A model of duopoly suggesting a theory of entry barriers. Bell Journal of Economics 10(1):20-32.

Fjell, Kenneth and John S. Heywood, 2002. Public Stackelberg leadership in a mixed oligopoly with foreign firms. Australian Economic Papers 41(3):267-281.

Fjell, Kenneth and Debashis Pal, 1996. A mixed oligopoly in the presence of foreign private firms. Canadian Journal of Economics 29(3):737-743.

Friedman, James W., 1971. A non-cooperative equilibrium for supergames. Review of Economic Studies 38(113):1-12.

Gibbons, Robert, 1992. Game theory for applied economists, Cambridge, MA: Princeton University Press.

Ghosh, Arghya and Manipushpak Mitra, 2010. Comparing Bertrand and Cournot in mixed markets. Economics Letters 109(2):72-74.

Ghosh, Arghya and Manipushpak Mitra, 2014. Reversal of Bertrand-Cournot rankings in the presence of welfare concerns. Journal of Institutional and Theoretical Economics 170(3):496-519.

Gupta, Barnali and Venkatu, Guhan, 2002. Tacit collusion in a spatial model with delivered pricing. Journal of Economics 76(1):49-64.

Haraguchi, Junichi and Toshihiro Matsumura, 2014. Price versus quantity in a mixed duopoly with foreign penetration. Research in Economics 68(4):338-353.

Haraguchi, Junichi and Toshihiro Matsumura, 2016. Cournot--Bertrand Comparison in a Mixed Oligopoly. Journal of Economics 117(2):117-136. Heywood, John S and Guangliang Ye, 2009 Privatization and timing in a mixed oligopoly with both foreign and domestic firms. Australian Economic Papers, 48(4):320-332.

Ishibashi, Ikuo and Toshihiro Matsumura, 2006. R&D competition between public and private sectors. European Economic Review 50(6):1347-1366.

Ishida, Junichiro and Noriaki Matsushima, 2009. Should civil servants be restricted in wage bargaining? a mixed-duopoly approach. Journal of Public Economics 93(3-4):634-646.

Itoh, Motoshige, Kazuharu Kiyono, Masahiro Okuno-Fujiwara, and Kotaro Suzumura, 1991. Economic Analysis of Industrial Policy, Academic Press, New York.

Maggi, Giovanni, 1999. The role of multilateral institutions in international trade cooperation. American Economic Review 89(1), 190-214.

Matsumura, Toshihiro and Noriaki Matsushima, 2005. Cartel stability in a delivered pricing oligopoly. Journal of Economics 86(3):259-292.

Matsumura, Toshihiro and Noriaki Matsushima, 2012. Competitiveness and stability of collusive behavior. Bulletin of Economic Research 64(s1):s22-s31.

Matsumura, Toshihiro and Akira Ogawa, 2012. Price versus quantity in a mixed duopoly. Economics Letters 116(2):174-177.

Matsumura, Toshihiro and Akira Ogawa, 2014. Corporate social responsibility or payoff asymmetry?:a study of an endogenous timing game. Southern Economic Journal 81(2):457-473.

Matsumura, Toshihiro and Daisuke Shimizu, 2010. Privatization waves. Manchester School 78(6):609-625.

Nakamura Yasuhiko, 2015. Endogenous choice of strategic contracts in a mixed duopoly with bargaining over managerial delegation contracts. Australian Economic Papers 54(2):121-134.

Nishimori, Akira and Hikaru Ogawa. 2002. Public monopoly, mixed oligopoly, and productive efficiency, Australian Economic Papers, 41(2):185-190.

Nishimori, Akira and Hikaru Ogawa. 2005. Long-term and short-term contract in a mixed market. Australian Economic Papers, 44(3):275-289.

Ogawa, Hikaru and Yasuo Sanjo, 2007. Location of public firm in the presence of multinational firm: A mixed duopoly approach, Australian Economic Papers, 46(2):191-203.

Pal, Rupayan, 2014. Price and quantity competition in network goods duopoly: a reversal result. Economics Bulletin, 34(2), 1019-1027.

Pal, Rupayan, 2015. Cournot vs. Bertrand under relative performance delegation: Implications of positive and negative network externalities. Mathematical Social Sciences, 75:94-101.

Scrimitore, Marcella, 2014. Profitability under commitment in Cournot and Bertrand mixed markets. Journal of Institutional and Theoretical Economics 170(4):684-703.

Shubik, Martin and Richard Levitan, 1980. Market Structure and Behavior (Harvard University Press, Cambridge, Massachussets, U.S.A.).

Vives, Xavier, 1985. On the efficiency of Bertrand and Cournot equilibria with product differentiation. Journal of Economic Theory, 36(1):166--175.

Wen, Mei and Dan Sasaki, 2001. Would excess capacity in public firms be socially optimal? Economic Record 77(238):283-290.

Ye, Guangliang, 2016 Leadership and privatisation in a mixed multi-product oligopoly: an endogenous timing model. Australian Economic Papers, 55(2):170-180.