On the efficiency of private and state-owned enterprises in mixed markets ¬リニ

a r t i c l e i n f o We examine oligopoly models of vertical product differentiation in which producing firms face variable costs of quality development. We show that comparing to private oligopoly, mixed oligopoly – whereby state-owned enterprises (SOEs) and private firms coexist – enhances social welfare but reduces firms' profitability. We also demonstrate that Bertrand competition makes firms better off under mixed oligopoly but it makes firms worse off under private oligopoly compared with Cournot competition. These findings help to justify both the existence of SOEs and the efficiency of SOEs and private firms in mixed markets in transitional economies. Mixed markets – whereby state-owned enterprises (SOEs) and private firms coexist – are often observed in reality, especially in transitional economies. In these markets, the issue of whether or not SOEs should be retained in the economy and – if yes – how to maximize their efficiency remains hotly debated, at least from a policy standpoint. A number of theoretical studies have paid attention to this issue by focusing on government's regulations in mixed markets (market structure, mode of competition, ownership, and subsidies) under the approach of horizontal product differentiation (Cremer et al. The general findings are that mixed oligopoly enhances social welfare comparing to private oligopoly and there is usually a way to achieve social optimum under mixed oligopoly (such as through a subsidy). Furthermore, under mixed oligopoly, price (Bertrand) competition yields larger profits for firms than quantity (Cournot) competition. However, under the approach of horizontal product differentiation, in most cases, not only is the product quality assumed to be exogenous, or even ignored, but also consumers are homogeneous with respect to product quality and/or prices. In practice, however, competing firms often attempt to make their product qualitatively different from their competitors. That is, firms often choose their product quality endogenously. At the same time, consumers are also heterogeneous with respect to quality and/or prices, and they are willing to pay more for products with a higher quality. In other words, we usually observe vertical markets in reality. In these vertical markets, clearly the conclusions of the horizontal product differentiation models do not have an immediate application and, therefore, the question of whether mixed oligopoly or private oligopoly is better for social welfare and firms' profitability deserves some further theoretical justifications. Despite the popularity of the vertical product differentiation model proposed by Mussa and …