Time-inconsistent Output Subsidy/Tax Policies in Free-entry Mixed Markets

Chen, Jiaqi and Lee, Sang-Ho and Muminov, Timur (2019): Time-inconsistent Output Subsidy/Tax Policies in Free-entry Mixed Markets.

Abstract

This paper considers time-inconsistent output subsidy/tax policies in free-entry mixed markets and compares committed and non-committed regimes under different competition modes. In a committed regime where the subsidy is determined before the private firms enter the market, the optimal rate is zero in either Cournot game or Stackelberg game when the public firm is a follower, while it is negative in Stackelberg game with public leadership. However, in the non-committed regime where the subsidy is not determined before entry, the optimal rate is always positive. Finally, we show that private leadership is the best for social welfare regardless of the timing of output subsidy/tax policies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Free-entry mixed market, Committed policy, Non-committed policy, Output subsidy
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General; H - Public Economics > H4 - Publicly Provided Goods > H42 - Publicly Provided Private Goods; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

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