Oligopoly Theory (14) Mixed Oligopoly - University of …web.iss.u-tokyo.ac.jp/~matsumur/OT14DMO.pdf・What distortion does welfare-maximizing behavior by the public firm yield ? De

Oligopoly Theory 1

Oligopoly Theory (14)

Mixed Oligopoly

Aim of this lecture

(1) To understand the concept of mixed oligopoly.

(2) To understand the result that welfare-

maximizing behavior by a public firm can yield

suboptimal outcome.

Plan of the presentation

(1) Mixed Oligopoly

(2) Classical Discussion of Public Enterprises

(3) Welfare-Improving Privatization

(4) Three Typical Model Formulations of Mixed Oligopoly

(5) Partial Privatization

(6) International Competition

(7) Endogenous Competition Structure

(8) Multiple Public Enterprises

(9) Privatization Neutrality Theorem

(10) Other topics

Oligopoly Theory 2

Mixed Oligopoly, Mixed Market

State-owned public firms compete against private

firms

Oligopoly Theory 3

Examples of mixed oligopoly in

Japan

Banking: Postal Bank, DBJ, Iwate Bank

Housing Loan: the Public House Loan Corporation

Private Funds: DBJ, Industrial Revitalization

Corporation of Japan

Life Insurance: Postal Life Insurance (Kampo)

Overnight Delivery: Japan Post

Energy: Public Gas Corps (Narashino, Fukui,...)

Broadcasting: NHK

Oligopoly Theory 4

Examples of mixed oligopoly in

other countries

Banking: Postal Banks (New Zealand, U.K., Germany,...)

Automobiles: Renault, VW

Medicine: Public Institute in Brazil

Defense, Aviation: EADS, Airbus

Airline: airlines (Swiss, Belgian, France,...)

Overnight Delivery: USSP

Energy: Electricite de France, Gas de France

Broadcasting: BBC

Oligopoly Theory 5

Differences between public and

private firms

(1)Public firms are less efficient than private firms.

→Many empirical works do not support this view

(and many other papers do support this view).

(2) Difference of objective function

→Private firms maximize their own profits, whereas

public firms might care about social welfare.

Oligopoly Theory 6

Classical discussions of public

firms

Why do public firms exist?

(1) Natural monopoly

(a) Public firm monopoly

(b) Regulated private firm monopoly

Oligopoly Theory 7

Natural Monopoly

Oligopoly Theory 8

P

Ｙ

AC

D

0

Classical discussions of public

firms(2)

Why do public firms exist?

(2) Unprofitable market

(a) Public firm monopoly

(b) Private firm monopoly with subsidy

(compensation of deficit from public funds)

Oligopoly Theory 9

Non-Profitable Market

Oligopoly Theory 10

P

Y

AC

D

0

Oligopoly Theory 11

Classical discussions on state-

owned public firms→Public firm is the monopolist

In real economies, public firms are not always

monopolists.

Public firms do not always face significant economy

of scale, which guarantees monopoly by the

public firm.

Problem(1)

Oligopoly Theory 12

(1) How to provide incentives for welfare

maximization?

→ This is the central issue for the public firm's

monopoly

If we assume that the public firm is a welfare-

maximizer under the monopoly, it is absolutely

obvious that the first best is achieved by definition.

→No unsolved research problem exists. Thus,

researchers never assume that the public firm is a

welfare maximizer when they consider monopoly

situations.

Problem(2)

Oligopoly Theory 13

(2) Is the welfare-maximizing behavior by the public

firm efficient?

→This problem never appears in the public firm's

monopoly.

This question makes sense in mixed oligopolies

because welfare-maximizing behavior by the public

firm might worsen welfare through strategic

interaction between public and private firms.

→This is the central issue of mixed oligopolies.

Issues of mixed oligopoly

Oligopoly Theory 14

・Is welfare-maximizing behavior by the public firm

desirable in mixed oligopoly ?

・What distortion does welfare-maximizing

behavior by the public firm yield ?

De Fraja and Delbono(1989)

Oligopoly Theory 15

(1) Cournot-type (quantity-setting competition,

simultaneous-move, no product differentiation)

(2) No cost difference between public and private firms.

(3) Linear demand and quadratic cost function.

(4) The private firm maximizes its own profits given

outputs of other firms.

(5) The public firm maximizes social welfare

given outputs of other firms.

→The public firm chooses its output level so that the

price equals to its marginal cost.

Results

Oligopoly Theory 16

Compare the pure economy (after the

privatization) to the mixed economy (before the

privatization)

→Privatization of the public firm might improve

welfare

WP >WM or WP<WM.

WP >WM more likely takes place when the

number of private firms are large.

Intuition

Oligopoly Theory 17

(1) Privatization of the public firm reduces public firm's

output q0

(2) Privatization increases each private firm's output q1

→production substitution from the public firm to the

private firms.

(3) Privatization decreases total output q0 +nq1.

Effects (1) and (3) reduce welfare and effect (2)

improves welfare. Effect (2) may be the strongest,

leading to an improvement of welfare.

(2) is stronger and (3) is weaker when m is larger

→Privatization morel likely improves welfare when n is

larger.

Production substitution

Oligopoly Theory 18

q1

reaction curve

after privatization

reaction curve of

the private firm

0

reaction curve

before privatization

q0

More detailed explanation of

intuition

Oligopoly Theory 19

Privatization of the public firm reduces q0 and

increases q1 (production substitution).

Before Privatization p=c0' >c1'

→Public firm's marginal cost is higher than private

firm's

→ Production substitution from public to private

economizes production costs →Welfare-improving

→Privatization reduces total production level and so

consumer surplus → Welfare-reducing

It is possible that the former effect dominates the latter

effect.

Contribution of De Fraja and

Delbono (1989)

Oligopoly Theory 20

(1) No cost difference between public and private firms

→ privatization does not improve production efficiency

(2) Public firm's objection: welfare →No agency

problem in the public firm

(3) No additional policies by regulation, tax, or subsidy

after privatization.

⇒Ideal circumstances for the existence of public firm.

Against assumptions for the advocators of

privatizations. → Nevertheless, privatization might

improve welfare

Assumptions of De Fraja and

Delbono(1989)

Oligopoly Theory 21

Many researchers in this field believe that the

assumptions above are plausible, but many other

researchers (as well as I) make these assumptions for

strategic purposes.

(1) Even without cost differences, privatization

improves welfare.

→If public firm is less efficient, much more.

(2) Even without any agency problem in the public firm,

privatization improves welfare.

→If public firm has agency problem, much more.

Why quadratic costs？

Oligopoly Theory 22

Constant marginal cost yields problems

If marginal costs are constant and no cost differences

exists, the public firm's monopoly yields the first

best.

→ It is nonsense to discuss mixed oligopolies in such

a circumstance.

How to avoid this problem?

Oligopoly Theory 23

(1) Using constant marginal costs and assuming cost

differences between public and private firms.

Mujumdar and Pal (1998),Pal (1998),Matsumura

(2003a),Matsumura and Ogawa (2010)

First best is achieved by the marginal cost pricing of

the private firm.

The private leadership yields the second best where

only private firms produce and the price is equal to

the marginal cost of the public firm.

It is the equilibrium in the observable delay game.


Oligopoly Theory 24

(2) Using increasing marginal costs. De Fraja and

Delbono (1989),Fjell and Pal (1996), White (1996),

Matsumura and Kanda (2005), Heywood and Ye

(2009a), Wang et al. (2009).

If there is no cost difference between public and

private firms, at the first best all firms choose the

same output level. It is not always achieved in

mixed oligopoly since public and private firms have

different objectives.


Oligopoly Theory 25

(3) Dropping the assumption of homogenous goods.

Monopolistic competition: Anderson et al. (1997),

Matsumura et al. (2009)

Linear demand (quadratic utility function) with product

differentiation: Fujiwara (2007), Matsumura and

Ogawa (2012), Haraguchi and Matsumura

(2014,2016)

Mill pricing location model: Cremer et al. (1992),

Matsumura and Matsushima (2003,2004), Inoue et al.

(2008)

Delivered pricing location model: Matsushima and

Matsumura (2003,2006), Heywood and Ye (2009b)


Oligopoly Theory 26

More general Costs : Matsumura (1998, 2003b),

Kiyono and Tomaru (2013)

Discuss both (1) and (2): Matsumura and Okamura

(2015).

Discuss both (2) and (3): Matsumura and Shimizu

(2010)

Partial Privatization

Oligopoly Theory 27

De Fraja and Delbono: The public sector holds whole

shares in the firm (nationalization) or the private

sector holds whole shares in the firm (privatization)

In the real world, we observe many firms with mixture

ownership (partial privatization)

NTT, JT, JP, Iwate Bank, Hokuriku Electric Power

Company, VW, Renault

Matsumura (1998)

Oligopoly Theory 28

(1) Cournot-type (quantity-setting competition,

simultaneous-move, no product differentiation)

(2) No restrictions on the cost differences between

public and private firms.

(3) The objective function of the public firm is the

weight sum of social welfare and its own profits.

（Partial Privatization)

U0 = (1-θ) W + θπ0

(4) General demand and general costs.

The government chooses s and s affects θ. After

observing θ firms compete in the product market.

Results

Oligopoly Theory 29

θ =0 is optimal only if it yields public monopoly.

→If we allow partial privatization, no privatization (full

nationalization) never becomes optimal.

Oligopoly Theory 30

Intuition

(1) Suppose that θ =0. A slight increase of θ from 0

reduces public firm's output q0 .

Since p=c0‘ when θ =0, this effect is negligible

(second order) ←envelope theorem

(2) An increasing in θ increases private firm's output

q1. Since p>c1', this effect is nonnegligible (first order)

⇒(2) dominates (1).

Partial Privatization

Oligopoly Theory 31

Free Entry: Matsumura and Kanda (2005), Wang et al.

(2010)

Product Differentiation: Fujiwara (2007)

Spatial Model: Lu and Poddar (2007)

Environmental Policy: Kato (2006), Ohori (2006)

Anti-Trust: Barcena-Ruiz and Garzon (2003)

Labour Market: Beladi and Chao (2006)

Subsidization: Tomaru (2006)

Endogenous Timing: Matsumura and Ogawa (2010),

Barcena-Ruiz and Garzon (2010)

Optimal degree of privatization

Oligopoly Theory 32

If we adopt partial privatization approach, we can

investigate the optimal degree of privatization (optimal

degree of θ.

Optimal degree of privatization depends on

(i) the number of private firms

(ii) the degree of foreign penetration

(iii) cost difference between public and private firms

(iv) existence of other policy instruments such as tax-

subsidy policy and shadow cost of public funding

(vi) Competition structure (free entry, role of public firm

and so on)


Oligopoly Theory 33

Suppose that firms face Cournot competition. Optimal

degree of privatization is increasing in the number of

private firms. (Han and Ogawa, 2007, Lin and

Matsumura, 2012, Matsumura and Okamura, 2015).

It is decreasing in the foreign penetration in product

markets in the short run (Han and Ogawa, 2007, Lin

and Matsumura, 2012), and the result is inversed in

the long run (free entry markets). The latter result is

robust because it does not depend on the strategic

substitutability in product markets (Cato and

Matsumura, 2013).


and the number of firms

Oligopoly Theory 34

The number of firms is larger.

(1) Marginal cost of each private firm is smaller when

marginal cost is increasing.

(2) Price-cost margin is smaller.

An increase in θ reduces the total output (welfare loss)

and induces welfare-improving production substitution.

The welfare loss is less significant because of (2) and

welfare gain is more significant because of (1).

Both increase the optimal degree of privatization.

Optimal degree of privatization and

the toughness of competition

Oligopoly Theory 35

Consider a relative-profit-maximization approach. α is

larger (the competition is tougher).

(1) Marginal cost of each private firm is larger when

marginal cost is increasing.

(2) Price-cost margin is smaller.



The welfare loss is less significant because of (2) and

welfare gain is less significant because of (1).


the toughness of competition

Oligopoly Theory 36

When marginal cost is constant, only (2) matters. The

optimal degree of privatization is increasing in α.

When the marginal cost is increasing , (1) and (2) has

different effects. When the production cost is quadratic,

(1) dominates (2). → The optimal degree of

privatization is decreasing in α.

The two popular models yield the opposite policy

implications. (Matsumura and Okamura, 2015.)

Foreign Competitors

Oligopoly Theory 37

Public firm maximizes domestic welfare

→The public firm's behavior is dependent on whether

its rivals are domestic or foreign

If the rivals are foreign, the public firm becomes more

aggressive.

Fjell and Pal (1996)←De Fraja and Delbono (1989)

Pal and White (1998) ← Strategic Trade Policy

Mukherjee and Suetrong (2009) ← FDI

Chang (2005), Chao and Yu (2006), Fujiwara (2006)

← partial privatization version

Cato and Matsumura (2015) ← Strategic Trade Policy

at Free Entry Markets.


foreign ownership share in private

firms

Oligopoly Theory 38

The foreign ownership share in private firms is larger,

a lower price benefits for domestic welfare more.



Welfare loss effect becomes more significant

→The optimal degree of privatization is decreasing in

the foreign ownership share in private firms.


foreign ownership share in

privatized firms

~ Lin and Matsumura (2012)

Oligopoly Theory 39

The foreign ownership share in the privatized firm is

larger, the privatized firm becomes more aggressive

after privatization. Expecting this aggressive behavior,

the stock price of the former public firm falls, resulting

in a welfare loss. Thus, the government chooses a

larger degree of privatization sells more when foreign

ownership in the privatized firm is larger.

→The optimal degree of privatization is decreasing in

the expected foreign ownership share in privatized firm.

Free Entry Equilibrium

Oligopoly Theory 40

In the first stage, the government chooses the degree

of privatization.

In the second stage, each private firm chooses

whether or to enter the market.

In the third stage, all firms face Cournot cometition.

Consider the subgame starting at the beginning of the

second stage.

→The equilibrium price is independent of θ.

Oligopoly Theory 41

Long-Run Equilibrium under Cournot Competition

ＤＭＲ

ＭＣ

ＡＣ

ＡＣ＞ＭＣ

Ｄ’

Ｐ＞ＭＲ

equilibrium output of each firm0

Free Entry Equilibrium

Oligopoly Theory 42

Welfare = CS+ profit of the public firm (privatized firm).

CS is independent of θ.

Price is independent of θ.

→Only the public firm’s profit matters.

Because the price is constant, marginal cost pricing is

the best.

When the private firms are domestic, θ=1 is

optimal.←Matsumura and Kanda (2005).

The optimal degree of privatization is increasing in the

foreign ownership share in private firms. ←Cato and

Matsumura (2013).

Ex ante and ex post privatization

Oligopoly Theory 43

Ex ante privatization ~ The same time structure as

Matsumura and Kanda (2005).

Ex post privatization

In the first stage, each private firm chooses whether or

to enter the market.

In the second stage, the government chooses the

degree of privatization.

In the third stage, all firms face Cournot cometition.

Question: The equilibrium price of the ex ante

privatization is (higher than, lower than, the same as)

that in the ex post privatization model.

Private Leadership, Public

Leadership

Oligopoly Theory 44

Consider a duopoly model with quantity competition

under strategic substitutes. Consider two

Stackelberg models.

One is Public Leadership (the public firm is the

Stackelberg Leader) and the other is Private

Leadership (the public firm is the Stackelberg

follower).

Private Leadership

Oligopoly Theory 45

The public firm plays a passive role as a potential

competitor of the private firm.

The public firm supplies only when the private firm's

supply is insufficient. ~ Public firm plays a

complementarity role of the private sector.

This role is intensively discussed in Canada and in

Japan (when Koizumi was prime minister)

Public Leadership

Oligopoly Theory 46

The public firm leads the private sector, a positive

role.

Question: The public firm produces (less, more)

under public leadership than under simultaneous

production of public and private firms.

Free Entry Version of Public

Leadership

Oligopoly Theory 47



In the second stage, one public firm produces and then

all private firms produce simultaneously (Public

leadership).

Question: The equilibrium price of the public leadership

is (higher than, lower than, the same as) that in the

Cournot model.

Free Entry Version of Public

Leadership

Oligopoly Theory 48

In the first stage, each private firm chooses whether

or to enter the market.

In the second stage, one public firm produces and

then all private firms produce simultaneously (Public

leadership). Private firms are domestic.

Question: The total social surplus under the public

leadership is (larger than, smaller than, the same as)

that under the Cournot competition.

Free Entry Version of Private

Leadership

Oligopoly Theory 49



In the second stage, all private firms produce

simultaneously, and then, one public firm produces

(Private leadership)

Question: The equilibrium price of the private

leadership is (higher than, lower than, the same as)

that in the Cournot model.

Endogenous Role

Oligopoly Theory 50

Consider the observable delay game.

There are two possible time periods for output choice .

In the first stage, firm i simultaneously chooses

whether it likes to be the leader (ti=L) or the follower

(ti=F). If two players' choices are consistent, i.e., one

chooses to be the leader and the other does to be the

follower, they get the equilibrium payoffs of a agreed

timing Stackelberg. Otherwise, they receive the

equilibrium payoffs in Cournot.

Desirable Role, Endogenous Role

Oligopoly Theory 51

Quantity Competition.

Pal (1998): When the private firm is domestic, the

private leadership is better than the public leadership

and it is an equilibrium in the observable delay game.

It is a unique equilibrium if the number of private firm

is larger than 3.

In a mixed duopoly, both private leadership and public

leadership constitute equilibria, but the former is risk

dominant (Matsumura and Ogawa 2012).

Matsumura (2003a): In the two—production-period

model, only the robust equilibrium is private

leadership.

Desirable Role, Endogenous Role

Oligopoly Theory 52

Quantity Competition.

Matsumura (2003b): When the private firm is foreign,

the public leadership is better than the private

leadership and it is an equilibrium in the observable

delay game.

Endogenous Price-Quantity Choice

Oligopoly Theory 53

Matsumura and Ogawa (2012) investigate price-quantity

choice in a mixed duopoly, using the model of Singh

and Vives (1984) . →choosing a price contract is a

dominant strategy for both firms, resulting in Bertrand

competition in mixed duopolies, in contrast to the results

in private duopolies.

Bertrand yields larger profit in the private firm and

greater welfare than Cournot.

These results hold true even if the private firm is owned

by foreign investors (Haraguchi and Matsumura 2014)

but not in an oligopoly (Haraguchi and Matsumura

2016) .

Assumptions of single public firm

Oligopoly Theory 54

Most existing works consider models with single

public firm.

If this single public firm is privatized, the market

becomes pure market economy.

Assumptions of single public firm

Oligopoly Theory 55

Considering desirable reform of the economic system

in former communist transitional countries, this is not a

plausible assumption. In reality numerous public firms

exist in such countries and it is politically impossible to

privatize all of the public firms at the same time.

Considering large scale privatization program in

traditional mixed economies, one privatization does not

yield pure market economy (because substantial public

firms remain after the privatization of several firms).

→Existing works cannot analyze these markets

effectively.

Examples of economies with

multiple public firms

Oligopoly Theory 56

(1) Former communist transitional countries

(examples) Russia, Many of Eastern and Central

European countries, China, Vietnam, Mongolia...

(2) Developing, recently developed, and emerging

countries

(examples) Brazil, India, Iran, Indonesia, Thailand,

Korea, Taiwan...

Examples of economies with

multiple public firms

Oligopoly Theory 57

(3) Successful privatization programs in developed

countries

(examples) UK, Japan, Germany, Australia, NZ

(4) Traditional mixed economies in developed

countries

(examples) Japan, France, Germany, Korea

Why did existing works consider

models with single public firm?

Oligopoly Theory 58

If no cost differences between public and private

firms exists, obviously N = m yields the first best

outcome.

→Full nationalization of the economy (complete

communist economy) yields the first best.

→ It is nonsense to discuss mixed oligopoly under

such assumptions.

But the result (complete communist economy yields

the first best) is so unrealistic and implausible.

The assumption of no cost

difference between public and

private firms

Oligopoly Theory 59

(1) Strategic assumption. (Even if no cost difference, privatization can improve welfare.)

→Much more if cost difference exits.

(2) Realistic assumption. (In mixed market, the public firm faces tough competition with private firms. If the public firm is extremely less efficient than private firms, it would not be able to survive.)

The assumption of no cost

difference between public and

private firms

Oligopoly Theory 60

If m = N (pure planned economy), no competitive

pressure exists and the assumption of no cost

difference is not plausible.

→Restricting attentions to single public firm and

avoiding the nonsense result that the first best is

achieved by pure nationalized economy.

Approach of Matsumura and

Shimizu (2010)

Oligopoly Theory 61

Suppose that the economy has 100 firms and 25 of them are public firms.

Then the number of public firms becomes 24,23,22,... by privatization.

What happens in the process of this privatization?

We believe that it is worth discussing this problem.

We dare to deviate from the traditional single public firm model.

Matsumura and Shimizu (2010)

m state-owned public firms compete against N-m

private firms. N firms face Cournot competition.

Each public firm maximizes welfare, while each private

firm maximizes its own profits.

Quadratic costs:

C = 0.5θ(qi)２ + K (public firm),

C = 0.5β(qi)２ + K (private firm), θ≧ β

Oligopoly Theory 62

Main concerns: Relationship between m and welfare.

Result 1

(1) W(m) is decreasing if the public firms are

significantly less efficient than the private firms.

(W is total social surplus, consumer surplus +

profits of firms. m is the number of public firms)

If public firms are sufficiently less efficient than the

private firms, privatization improves welfare

regardless of m and N

Oligopoly Theory 63

Result 1

Oligopoly Theory 64

W

m (the number of public firms)0

Result 2

(2) W(m) is increasing if the cost difference

between public firms and private firms are

sufficiently small and the total number of firms N

is small.

The government should improve the

competitiveness of the market before privatizing

the public firms.

Oligopoly Theory 65

Result 2

Oligopoly Theory 66

W

m (the number of public firms)

0

Result 3

(3) W(m) is U-shaped if the cost difference

between public firms and private firms are

sufficiently small and N (the total number of

firms) is large.

This is the most interesting case

Oligopoly Theory 67

Result 3

Oligopoly Theory 68

W

m (the number of public firms)0

Even if privatization does not improve

welfare at the early stages, it can

eventually lead to a point such that

privatizations after that point on are

beneficial to the society

Oligopoly Theory 69

W

mm1

0

Larger scale privatization

programs eventually more likely

end up with great success

Oligopoly Theory 70

W

m m1m2m3

0

Welfare-gains of privatizations is

accelerating

Oligopoly Theory 71

W

mm1m2m3

0

Intuition

Oligopoly Theory 72

Suppose that m public firms and N - m private firms

exist. Suppose that one public firm is privatized.

→Production substitutions from the privatized firm

to m - 1 public firm and to N - m private firms

take place.

→The former production substitution reduces

welfare and the latter improves welfare.

→The latter becomes stronger when m is smaller

and N is larger.

Implications

Oligopoly Theory 73

(1) Failures at early stages do not imply the failure of

the whole privatization program (except for highly

concentrated markets).

→We should evaluate privatization program from the

long term viewpoint.

(2) Smaller size privatization programs more likely fail.

(3) Welfare-gains of privatizations are larger at the

latter stage of privatization program.

→Once we reach the critical stage, the privatization

automatically proceeds with larger support.

Privatization Neutrality Theorem

Oligopoly Theory 74

Privatization Neutrality Theorem: Privatization does not

matter under optimal subsidy policy.

It implies that if the optimal subsidy policy is adopted,

discussing mixed oligopoly or privatization policy

does not make sense.

Most of the results in mixed oligopoly literature have

quite limited implications and importance if this

theorem is really robust.

Distractive Result, Disaster for researchers in this field.

Intuition behind PNT

Oligopoly Theory 75

Suppose that all firms are symmetric. Consider the

private oligopoly.

The first best is achieved when P=ci' (price =marginal

cost) ~ all firms choose the same output level

It is achieved by the production subsidy s*.

Intuition behind PNT

Oligopoly Theory 76

Suppose that one firm is nationalized. Suppose that

all of remaining firms do not change their output.

The nationalized firm, which is welfare-maximizer,

never changes its output .

All remaining private firms obviously have no incentive

to change their outputs.

→s* yields the first best outcome in the mixed

oligopoly.

Condition for PNT

Oligopoly Theory 77

When I explain the intuition behind PNT, I do not use

any of

(1) Private firms are profit maximizers

(2) Homogeneous product market,

(3) Single public firm

and so on.

All we use is the condition that the first best is

achieved at the symmetric equilibrium, the first best

is achieved by the simple unit subsidy, and the pubic

firm is welfare maximizer.

White(1996)

Oligopoly Theory 78

Introducing subsidy policy into the Cournot-type

model of De Fraja and Delbono (1989).

The government chooses unit subsidy s so as to

maximize resulting welfare

Results: Privatization affects neither optimal subsidy

rate nor resulting welfare

→Privatization does not matter under optimal

subsidy policy (Irrelevance Results)

Subsequent works

Oligopoly Theory 79

Poyago-Theotoky (2001): public firms' leadership;

Myles (2002):general demand and cost functions;

Tomaru (2006): partial privatization approach;

Hashimzade et al. (2007): product differentiation;

Kato and Tomaru (2007): various payoff functions of

private firms.

Irrelevance result (especially irrelevance result on

welfare) is quite robust.

General formulation and general result → Matsumura

and Okumura (2013)

Exception

Oligopoly Theory 80

Fjell and Heywood (2004): Privatization is relevant

under asymmetric order of moves among private firms.

Robustness of PNT

Oligopoly Theory 81

Privatization Neutrality Theorem is far from robust:

(1) PNT obviously does not hold when there is cost

difference between public and private firms.

(2) PNT does not hold unless all firms are domestic.~

Matsumura and Tomaru (2012)

(3) PNT does not hold at free entry markets

~Cato and Matsumura (2013)

(4) If there is an excess burden of taxation, PNT does

not hold. ~Matsumura and Tomaru (2013)

(5) PNT does not hold if firms control two or more

independent variables

Other Topics

Oligopoly Theory 82

(1) R&D Competition, Cost-Reducing Investment,

Quality-Improving Investment, Patent Race, Strategic

Contracting, and so on.

(2) Spatial Competition

(3) Relationship between Financial and Product

Markets

Oligopoly Theory (14) Mixed Oligopoly - University of …web.iss.u-tokyo.ac.jp/~matsumur/OT14DMO.pdf・What distortion does welfare-maximizing behavior by the public firm yield ? De

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