Comparing welfare and profit in quantity and price competition within Stackelberg mixed duopolies
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We compare welfare and profits under price and quantity competition in Stackelberg mixed duopolies. Under public leadership, price competition always yields greater profits and welfare than quantity competition. By contrast, under private leadership, the result depends on the nationality of the private firm. When the private firm is domestic (foreign), welfare is greater under quantity (price) competition. However, private firms always earn more under price competition. Introducing the nonnegative profit constraint affects welfare ranking but not profit ranking. These results indicate that profit ranking is fairly robust to the time structure in Stackelberg mixed duopolies, but welfare ranking is not.
KeywordsPublic leadership Private leadership Mixed markets Cournot–Bertrand comparison
JEL ClassificationH42 H44 L13 L32
We are grateful to Ming Hsin Lin, Noriaki Matsushima, Masaki Nakabayashi, Yoshihiro Tomaru, and the participants of seminars at The University of Tokyo for their helpful comments. We are indebted to two anonymous referees for their valuable and constructive suggestions. We acknowledge financial support from JSPS KAKENHI Grant Numbers (15K03347, 16J04589) and the Zengin Foundation for Studies on Economics and Finance. Needless to say, we are responsible for any remaining errors.