SFB 303 Discussion Paper No. A - 357

Author: Nett, Lorenz
Title: R&D innovation in a mixed duopolistic market
Abstract: The paper provides an explanation why public firms produce at higher average costs than private firms. To establish this result we deal with a mixed duopoly allowing both firms to choose among various technologies. The corresponding cost functions can be interpreted as the consequence of different investment levels in research and development. We will see that a private firm has an incentive to operate at lower variable costs but higher fixed costs than a public firm. Comparisons of a mixed duopoly with duopolies of two private and of two public firms, respectively, indicate how the allocation is affected by public production. In particular, the paper proves that destructive competition is more likely in the presence of public firms.
Creation-Date: December 1991
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