SFB 303 Discussion Paper No. A - 358

Author: Nett, Lorenz
Title: Mixed Oligopoly -A Survey-
Abstract: In this paper we present the main results of the literature on mixed oligopoly where all firms supply a homogenous product. However, this kind of literature has also some importance for reconsidering oligopolistic markets where big share-holding companies operate. The structure of the paper is as follows: after presenting the basic framework, we demonstrate that in the mixed oligopoly market we have a 'Cournot-Paradox' quite similar to the well-known Bertrand-Paradox. Having this in mind we present the literature ordered with respect to its main topics: optimal pricing policies, comparison of the allocations to the same situation where both firms are private, internal production costs, market entry and the role of strategic precommitment. Within the section on optimal price policy we will see that average-cost pricing is dominated by marginal-cost pricing from a public firm's view. The section on regulation by participation suggests that typically better allocations are achieved in the presence of public firms. De Fraja and Delbono (1989) give sufficient conditions such that the reverse result turns out. The models on internal efficiency give an explanation why a public firm may produce at higher average costs than a private firm. The last section on market entry explains why a public firm deters market entry in a situation where a private firm does not. On the other hand it shows in how far a public firm is restricted in entry deterrence. Finally we give a conclusion, reveal several possible ways for future research and the difficulties which will arise in further theorizing on the subject.
Creation-Date: December 1991
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