Mixed oligopoly, public firm behavior, and free private entry

We analyze a mixed oligopoly with free entry by private firms, assuming that a public firm maximizes an increasing function of output, subject to a break-even constraint. We establish an irrelevance result: whenever a mixed oligopoly is viable, then aggregate output, aggregate costs and welfare are...

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Bibliographic Details
Published in:Economics letters Vol. 117; no. 3; pp. 767 - 769
Main Authors: Bennett, John, La Manna, Manfredi
Format: Journal Article
Language:English
Published: Amsterdam Elsevier B.V 01.12.2012
Elsevier Science Ltd
Subjects:
Alliances
Entry
Market entry
Mixed oligopoly
Monopolies
Oligopoly
Privatization
Public enterprises
Public sector
Studies
Welfare
Welfare economics
P23
Mixed oligopoly
Entry
L32
Privatization
H32
ISSN:0165-1765, 1873-7374
Online Access:Get full text
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Summary:We analyze a mixed oligopoly with free entry by private firms, assuming that a public firm maximizes an increasing function of output, subject to a break-even constraint. We establish an irrelevance result: whenever a mixed oligopoly is viable, then aggregate output, aggregate costs and welfare are the same with and without the public firm. However, replacing a viable mixed oligopoly with a public monopoly yields higher net welfare. Implications for privatization policy are suggested. ► When a public firm is profit-constrained, its objective function is immaterial as long as it is increasing in the firm’s output. ► If a mixed oligopoly is viable under free entry, then it yields the same net social welfare as a free-entry all-private oligopoly. ► If a mixed oligopoly is viable under free entry, then a monopoly public firm yields strictly higher net social welfare.
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ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2012.08.025