Abstract.
We investigate the optimal behavior of a public firm in a mixed market involving private firms and one public firm. Existing works show that welfare-maximizing behavior by the public firm is suboptimal when the number of firms is given exogenously. We allow free entry of private firms and find that, in contrast to the case with the fixed number of firms, welfare-maximizing behavior by the public firm is always optimal in mixed markets. Furthermore, we find that mixed markets are better than pure markets involving no public firm if and only if the public firm earns nonnegative profits.
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Acknowledgments.
We are grateful to Koich Ishibashi, Minoru Kitahana, Hiroaki Ino, Jyota Ishikawa, Kazuhiko Kato, Murdoch MacPhee, Kiyoshi Mitsui, Yoshiyasu Ono, Masayuki Otaki, Makoto Saito, Daisuke Shimizu, Yoshimasa Shirai, Yuji Yumoto and participants of the seminars at Sofia University, Yokohama City University, Osaka University, Nanzan University, Tokyo Institute of Technology, Institute of Statistical Research, Waseda University, Otaru University of Commerce and the University of Tokyo, for their helpful comments and suggestions. We are also indebted to two anonymous referees for their valuable and constructive suggestions. Needless to say, we are responsible for any remaining errors. The financial supports from the Grant-in-Aid of the Japanese Ministry of Education, Science and Culture and ISS project “Lost decades?: re-apprising contemporary Japan” are greatly appreciated.
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Matsumura, T., Kanda, O. Mixed Oligopoly at Free Entry Markets. J Econ 84, 27–48 (2005). https://doi.org/10.1007/s00712-004-0098-z
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DOI: https://doi.org/10.1007/s00712-004-0098-z