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What role should public enterprises play in free-entry markets?

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Abstract

We investigate a desirable role of public enterprise in mixed oligopoly in free-entry markets. We compare the following three cases: (a) a public firm produces before private firms (public leadership), (b) all firms produce simultaneously (Cournot), (c) a public firm produces after private firms (private leadership). We find that private leadership is best and public leadership is worst, in contrast to the cases without entries and exits of private firms. We also investigate the welfare implication of privatization. We find that some important results shown by existing works do not hold under private leadership.

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Authors and Affiliations

  1. School of Economics, Kwansei Gakuin University, 1-155 Uegahara Ichiban-cho, Nishinomiya, 662-8501, Japan

    Hiroaki Ino

  2. Institute of Social Science, University of Tokyo, Tokyo, Japan

    Toshihiro Matsumura

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  1. Hiroaki Ino
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  2. Toshihiro Matsumura
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Correspondence to Hiroaki Ino.

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Ino, H., Matsumura, T. What role should public enterprises play in free-entry markets?. J Econ 101, 213–230 (2010). https://doi.org/10.1007/s00712-010-0153-0

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  • DOI: https://doi.org/10.1007/s00712-010-0153-0

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