Thursday, July 8, 2010
Posted by D. Daniel Sokol
Stefan Lutz and Mario Pezzino (both University of Manchester, School of Social Sciences) have a new paper on Mixed oligopoly, vertical product differentiation and fixed quality-dependent costs.
ABSTRACT: A private and a public firm face fixed quality-dependent costs of production and compete first in quality and then either in prices or in quantities. In the long run the public firm targets welfare maximization whereas the private firm maximizes profits. In the short run both firms compete in prices or quantities to maximize profits. Mixed competition is always socially desirable compared to a private duopoly regardless of the type of competition in the short run and the equilibrium quality ranking. In addition, mixed competition seems to be a more efficient regulatory instrument than the adoption of a minimum quality standard.