Profit-enhancing entries in mixed oligopolies

Mixed oligopolies are characterized by private and public enterprises. Entry into these markets was restrictive, but has now been relaxed by deregulations; as a result, private firms have entered mixed oligopolies. An increase in the number of private firms increases competition among private firms and reduces the profit of incumbent private firms, given the privatization policy remains unchanged. However, an increase in the number of private firms may in turn affect privatization policy, and thus, indirectly affect private firms' profits. Therefore, the overall effect on private firms' profit is ambiguous. In this study, we thus investigate how the number of private firms affects the profit of each private firm in mixed oligopolies. For this end, we use a linear-quadratic production cost function, which covers two popular model formulations in the mixed oligopoly literature. We show that, if the degree of privatization is exogenous, the profit of each private firm is decreasing in the number of private firms. However, if the degree of privatization is endogenous, the relationship between the number of private firms and profit takes an inverted-U shape under a plausible range of cost parameters. Our results imply that there can exist multiple equilibria in free-entry markets with different degrees of privatization

Profit-enhancing entries in mixed oligopolies

Mixed oligopolies are characterized by private and public enterprises. Entry into these markets was restrictive, but has now been relaxed by deregulations; as a result, private firms have entered mixed oligopolies. An increase in the number of private firms increases competition among private firms and reduces the profit of incumbent private firms, given the privatization policy remains unchanged. However, an increase in the number of private firms may in turn affect privatization policy, and thus, indirectly affect private firms' profits. Therefore, the overall effect on private firms' profit is ambiguous. In this study, we thus investigate how the number of private firms affects the profit of each private firm in mixed oligopolies. For this end, we use a linear-quadratic production cost function, which covers two popular model formulations in the mixed oligopoly literature. We show that, if the degree of privatization is exogenous, the profit of each private firm is decreasing in the number of private firms. However, if the degree of privatization is endogenous, the relationship between the number of private firms and profit takes an inverted-U shape under a plausible range of cost parameters. Our results imply that there can exist multiple equilibria in free-entry markets with different degrees of privatization

Multiple Long-Run Equilibria in a Free-Entry Mixed Oligopoly

We investigate a free-entry mixed oligopoly with constant marginal costs. A privatization policy is implemented after private firms enter the market. We find that both full privatization and full nationalization are equilibrium policies, and the former is the worst privatization policy for welfare

Implicit Protectionism via State Enterprises and Technology Transfer from Foreign Enterprises

We formulate a mixed triopoly in which one state enterprise competes with one domestic and one foreign private enterprise. The private enterprise can transfer its technology to the private rival, which reduces the rival's production cost. We show that if the privatization policy is endogenous, the foreign firm voluntary transfers its technology, even without fees. We also show that the domestic private firm does not transfer its technology to the foreign firm. Consequently, the domestic private enterprise extracts rents from the foreign enterprise and increases its market share. We also show that the foreign enterprise may strategically raise its local ownership share, which implies that the existence of a state enterprise and its potential future privatization serve as an industrial policy that improves the domestic firm's competitive advantage relative to the foreign enterprise or the implicit foreign ownership regulation

Supply Function Equilibria and Nonprofit-Maximizing Objectives

We examine the supply function equilibrium (SFE), which is often used in the analysis of multi-unit auctions such as wholesale electricity markets, among (partially) public firms. In a general model, we characterize the SFE of such firms and examine the properties of symmetric SFE. We show, analyzing an asymmetric SFE in a duopoly model with linear demand and quadratic cost functions, that, when a partially public firm weighs more on the social welfare, the supply functions of not only the partially public firm but also a profit maximizing firm are flatter at the equilibrium. We also confirm that in a linear-quadratic model, the SFE converges to the (inverse) marginal cost function when the firms' social concerns increase symmetrically in the industry

Firms' Costs, Profits, Entries, and Innovation under Optimal Privatization Policy

We investigate how cost conditions of private firms affect optimal privatization policy and private firms' profits. We find that the optimal degree of privatization is decreasing with the costs of private firms unless the public firm is fully privatized in equilibrium. A cost reduction in a private firm increases the degree of privatization and benefits for all private firms. Therefore, each private firm's profit is increasing with its rival private firms' costs, which is in contrast to the result when the degree of privatization is given exogenously. This interesting property yields two important results. The profit of each private firm can increase with the number of private firms, and the positive externality of innovation accelerates private firms' R&D

Firms' Costs, Profits, Entries, and Innovation under Optimal Privatization Policy

We investigate how cost conditions of private firms affect optimal privatization policy and private firms' profits. We find that the optimal degree of privatization is decreasing with the costs of private firms unless the public firm is fully privatized in equilibrium. A cost reduction in a private firm increases the degree of privatization and benefits for all private firms. Therefore, each private firm's profit is increasing with its rival private firms' costs, which is in contrast to the result when the degree of privatization is given exogenously. This interesting property yields two important results. The profit of each private firm can increase with the number of private firms, and the positive externality of innovation accelerates private firms' R&D

Common Ownership among Private Firms and Privatization Policies

This study investigates the relationship between the optimal privatization policy and the degree of common ownership among private firms by formulating a mixed oligopoly model in which one public firm competes against private firms under common ownership. We find that depending on the private firms' cost structure, one of the following three patterns emerges: (a) the optimal degree of privatization is increasing in the degree of common ownership, (b) the optimal degree of privatization is decreasing in the degree of common ownership, (c) an inverted U-shaped relationship exists between the two. If the marginal cost of private firms is constant, then (b) always emerges, regardless of whether the marginal cost of the public firm is increasing or constant. However, if the marginal cost of private firms is increasing, then all three patterns can emerge. Our results suggest that the property of the optimal privatization policy depends crucially on the cost structure of private firms

Endogenous Timing in a Price-Setting Mixed Oligopoly

We investigate the endogenous order of moves in a price-setting mixed oligopoly model, comprising two private firms and a public firm. We show that sequential moves emerge as the equilibrium in the observable delay game. Specifically, one of the private firms and the public firm set their prices in period 1, and the other private firm does so in period 2, in equilibrium, if their goods are not significantly differentiated. This is a clear contrast to a mixed duopoly where a simultaneous move game is a unique equilibrium. We also discuss a number of extensions and the robustness of our result

Multiple Long-Run Equilibria in a Free-Entry Mixed Oligopoly

We investigate a free-entry mixed oligopoly with constant marginal costs. A privatization policy is implemented after private firms enter the market. We find that both full privatization and full nationalization are equilibrium policies, and the former is the worst privatization policy for welfare