Endogenous Public and Private Leadership with Diverging Social and Private Marginal Costs

Haraguchi, Junichi and Matsumura, Toshihiro (2019): Endogenous Public and Private Leadership with Diverging Social and Private Marginal Costs.

Abstract

We investigate endogenous timing in a mixed duopoly with price competition and with social marginal cost differing from private marginal costs. We find that any equilibrium timing patterns--Bertrand, Stackelberg with private leadership, Stackelberg with public leadership, and multiple Stackelberg equilibria-- emerge. When the foreign ownership share in a private firm is less than 50%, public leadership more likely emerges than private leadership. Conversely, private leadership can emerge in a unique equilibrium when the foreign ownership share in a private firm is large. These results may explain recent policy changes in public financial institutions in Japan. We also find a nonmonotone relationship between the welfare advantage of public and private leadership and the difference between social and private marginal costs for a private firm. A nonmonotone relationship does not emerge in profit ranking.

• Item Type: MPRA Paper
• Language: English
• Keywords: public financial institutions, differentiated products, Bertrand, Stackelberg, payoff dominance
• Subjects: 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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