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Profit‐enhancing entries in mixed oligopolies

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  • Junichi Haraguchi
  • Toshihiro Matsumura
Abstract
Mixed oligopolies are characterized by private and public enterprises. Previously, entry into these markets was restrictive. It has since been relaxed by deregulations, and as a result, private firms have entered mixed oligopolies. An increase in the number of private firms increases competition among them and reduces the profit of incumbent private firms, given the privatization policy remains unchanged. However, an increase in the number of private firms may affect privatization policy, and thus, indirectly affect private firms' profits. Therefore, the overall effect on private firms' profit is ambiguous. In this study, we investigate how the number of private firms affects the profit of each private firm in mixed oligopolies. We use a linear‐quadratic production cost function, which covers two popular model formulations in the mixed oligopoly literature. We show that if the degree of privatization is exogenous, the profit of each private firm decreases with the number of private firms. However, if the degree of privatization is endogenous, the relationship between the number of private firms and profit takes an inverted‐U shape under a plausible range of cost parameters. Our results imply that there can exist multiple equilibria in free‐entry markets with different degrees of privatization.

Suggested Citation

  • Junichi Haraguchi & Toshihiro Matsumura, 2021. "Profit‐enhancing entries in mixed oligopolies," Southern Economic Journal, John Wiley & Sons, vol. 88(1), pages 33-55, July.
    • Handle: RePEc:wly:soecon:v:88:y:2021:i:1:p:33-55
    DOI: 10.1002/soej.12506
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    2. Xia Wang & Tingting Tan & Mingqing Xing, 2022. "Environmental awareness of the private firm and optimal privatization in a mixed duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 4055-4063, December.
    3. Jiaqi Chen & Sang‐Ho Lee & Timur K. Muminov, 2022. "R&D spillovers, output subsidies, and privatization in a mixed duopoly: Flexible versus irreversible R&D investments," Bulletin of Economic Research, Wiley Blackwell, vol. 74(3), pages 879-899, July.
    4. John S. Heywood & Dongyang Li & Guangliang Ye, 2022. "Mixed duopoly under hotelling with convex production costs," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 69(2), pages 487-510, October.
    5. John S. Heywood & Zerong Wang & Guangliang Ye, 2022. "Strategic delegation in an international mixed oligopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 1888-1898, September.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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