Advertisement

Journal of Economics

, Volume 126, Issue 1, pp 75–93 | Cite as

Comparing welfare and profit in quantity and price competition within Stackelberg mixed duopolies

  • Kosuke HiroseEmail author
  • Toshihiro Matsumura
Article

Abstract

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.

Keywords

Public leadership Private leadership Mixed markets Cournot–Bertrand comparison 

JEL Classification

H42 H44 L13 L32 

Notes

Acknowledgements

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.

References

  1. Bárcena-Ruiz JC (2007) Endogenous timing in a mixed duopoly: price competition. J Econ 91(3):263–272CrossRefGoogle Scholar
  2. Bárcena-Ruiz JC, Garzón MB (2005a) Economic integration and privatization under diseconomies of scale. Eur J Polit Econ 21(1):247–267CrossRefGoogle Scholar
  3. Bárcena-Ruiz JC, Garzón MB (2005b) International trade and strategic privatization. Revi Dev Econ 9(4):502–513CrossRefGoogle Scholar
  4. Boyer M, Moreaux M (1987) On Stackelberg equilibria with differentiated products: the critical role of the strategy space. J Ind Econ 36(2):217–230CrossRefGoogle Scholar
  5. Cato S, Matsumura T (2015) Optimal privatization and trade policies with endogenous market structure. Econ Rec 91:309–323CrossRefGoogle Scholar
  6. Chen TL (2017) Privatization and efficiency: a mixed oligopoly approach. J Econ 120(3):251–268CrossRefGoogle Scholar
  7. Chirco A, Colombo C, Scrimitore M (2014) Organizational structure and the choice of price versus quantity in a mixed duopoly. Jpn Econ Rev 65(4):521–542CrossRefGoogle Scholar
  8. Chirco A, Scrimitore M (2013) Choosing price or quantity? The role of delegation and network externalities. Econ Lett 121(3):482–486CrossRefGoogle Scholar
  9. Colombo S (2016) Mixed oligopolies and collusion. J Econ 118(2):167–184CrossRefGoogle Scholar
  10. Corneo G, Jeanne O (1994) Oligopole mixte dans un marche commun. Annales d’Economie et de Statistique 33:73–90CrossRefGoogle Scholar
  11. Dixit AK (1979) A model of duopoly suggesting a theory of entry barriers. Bell J Econ 10(1):20–32CrossRefGoogle Scholar
  12. Estrin S, de Meza D (1995) Unnatural monopoly. J Public Econ 57(3):471–488CrossRefGoogle Scholar
  13. Fjell K, Pal D (1996) A mixed oligopoly in the presence of foreign private firms. Can J Econ 29(3):737–743CrossRefGoogle Scholar
  14. Fridman A (2017) Partial privatization in an exhaustible resource industry. J Econ.  https://doi.org/10.1007/s00712-017-0573-1.
  15. Gelves JA, Heywood JS (2013) Privatizing by merger: the case of an inefficient public leader. Int Rev Econ Finance 27:69–79CrossRefGoogle Scholar
  16. Ghosh A, Mitra M (2010) Comparing Bertrand and Cournot in mixed markets. Econ Lett 109(2):72–74CrossRefGoogle Scholar
  17. Han L, Ogawa H (2008) Economic integration and strategic privatization in an international mixed oligopoly. FinanzArchiv 64(3):352–363CrossRefGoogle Scholar
  18. Haraguchi J, Matsumura T (2014) Price versus quantity in a mixed duopoly with foreign penetration. Res Econ 68(4):338–353CrossRefGoogle Scholar
  19. Haraguchi J, Matsumura T (2016) Cournot-Bertrand comparison in a mixed oligopoly. J Econ 117(2):117–136CrossRefGoogle Scholar
  20. Haraguchi J, Matsumura T (2018) Government-leading welfare-improving collusion. forthcoming. Int Rev Econo Finance.  https://doi.org/10.1016/j.iref.2017.11.005
  21. Horiuchi A, Sui QY (1993) Influence of the Japan Development Bank loans on corporate investment behavior. J Jpn Int Econ 7(4):441–465CrossRefGoogle Scholar
  22. Ino H, Matsumura T (2010) What role should public enterprises play in free-entry markets? J Econ 101(3):213–230CrossRefGoogle Scholar
  23. Ishida J, Matsushima N (2009) Should civil servants be restricted in wage bargaining? A mixed-duopoly approach. J Pub Econ 93(3–4):634–646CrossRefGoogle Scholar
  24. Lee SH, Matsumura T, Sato S (2018) An analysis of entry-then-privatization model: welfare and policy implications. J Econ 123(1):71–88CrossRefGoogle Scholar
  25. Lin MH, Matsumura T (2012) Presence of foreign investors in privatized firms and privatization policy. J Econ 107(1):71–80CrossRefGoogle Scholar
  26. Matsumura T (1998) Partial privatization in mixed duopoly. J Pub Econ 70(3):473–483CrossRefGoogle Scholar
  27. Matsumura T (2003a) Endogenous role in mixed markets: a two-production period model. South Econ J 70(2):403–413CrossRefGoogle Scholar
  28. Matsumura T (2003b) Stackelberg mixed duopoly with a foreign competitor. Bull Econ Res 55(3):275–287CrossRefGoogle Scholar
  29. Matsumura T, Ogawa A (2010) On the robustness of private leadership in mixed duopoly. Aust Econ Pap 49(2):149–160CrossRefGoogle Scholar
  30. Matsumura T, Ogawa A (2012) Price versus quantity in a mixed duopoly. Econ Lett 116(2):174–177CrossRefGoogle Scholar
  31. Matsumura T, Ogawa A (2017) Inefficient but robust public leadership. J Ind Compet Trade 17(4):387–398CrossRefGoogle Scholar
  32. Matsumura T, Okamura M (2015) Competition and privatization policies revisited: The payoff interdependence approach. J Econ 116(2):137–150CrossRefGoogle Scholar
  33. Matsumura T, Sunada T (2013) Advertising competition in a mixed oligopoly. Econ Lett 119(2):183–185CrossRefGoogle Scholar
  34. Merrill W, Schneider N (1966) Government firms in oligopoly industries: a short-run analysis. Quart J Econ 80(3):400–412CrossRefGoogle Scholar
  35. Pal D (1998) Endogenous timing in a mixed oligopoly. Econ Lett 61(2):181–185CrossRefGoogle Scholar
  36. Scrimitore M (2013) Price or quantity?: the strategic choice of subsidized firms in a mixed duopoly. Econ Lett 118(2):337–341CrossRefGoogle Scholar
  37. Scrimitore M (2014) Profitability under commitment in Cournot and Bertrand mixed markets. J Inst Theor Econ 170(4):684–703CrossRefGoogle Scholar
  38. Shubik M, Levitan R (1980) Market structure and behavior. Harvard University Press, CambridgeCrossRefGoogle Scholar
  39. Singh N, Vives X (1984) Price and quantity competition in a differentiated duopoly. RAND J Econ 15(4):546–554CrossRefGoogle Scholar
  40. Vives X (1985) On the efficiency of Bertrand and Cournot equilibria with product differentiation. J Econ Theory 36:166–175CrossRefGoogle Scholar
  41. Wang LFS, Lee JY (2013) Foreign penetration and undesirable competition. Econ Model 30(1):729–732CrossRefGoogle Scholar
  42. Wang LFS, Mukherjee A (2012) Undesirable competition. Econ Lett 114(2):175–177CrossRefGoogle Scholar
  43. Wang LFS, Tomaru Y (2015) The feasibility of privatization and foreign penetration. Int Rev Econ Finance 39:36–46CrossRefGoogle Scholar

Copyright information

© Springer-Verlag GmbH Austria, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Graduate School of EconomicsThe University of TokyoTokyoJapan
  2. 2.Institute of Social ScienceThe University of TokyoTokyoJapan

Personalised recommendations