A Mixed Oligopoly Where Private Firms Survive Welfare Maximisation

Abstract

Conventional models of a mixed oligopoly usually predict modest welfare improvements, because they are based on assumptions of increasing marginal costs and/or relative inefficiency in the public firm. Both assumptions can be questioned, but it is well known that the private firms would otherwise exit. This contribution shows that public and private firms can coexist in a welfare-improving mixed oligopoly without such assumptions, even in the limited case where (almost) only consumer benefits matter, if welfare is defined through a multiplicative function where also the distribution of payoffs matter. Output then corresponds to a hypothetical free-entry equilibrium, but with less duplication of fixed costs. [ABSTRACT FROM AUTHOR]