Managerial Incentives in Price-Setting Mixed Duopoly Model with Complementary Goods

Document Type : Research Note

Author

Department of Economics, Institute for Economic Sciences, Osaka, Japan

Abstract

This paper examines a price-setting mixed duopoly model in which a state-owned public firm and a private firm produce complementary goods. There is no possibility of entry or exit. Each firm has one owner and can hire one manager to make its production decisions. The paper first analyzes the following four possible cases: neither firm hires a manager, only the private firm hires a manager, only the state-owned public firm hires a manager and both firms hire managers. It is shown that economic welfare is identical in all the four cases. Next, this paper presents the equilibrium of the model. The paper shows that there exist two equilibrium outcomes: only the public firm hires a manager and neither firm hires a manager. As a result, it is found that the equilibrium of the paper is contrast with that obtained under price-setting mixed duopoly competition with substitute goods, where both the public firm and the private firm hire managers.

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References

Bárcena-Ruiz, J. C. (2009). The decision to hire managers in mixed markets under Bertrand competition. Japanese Economic Review, 60, 376-388.
Fernández-Ruiz, J. (2009). Managerial delegation in a mixed duopoly with a foreign competitor. Economics Bulletin, 29, 90-99.
Ohnishi, K. (2018). Managerial delegation in an international mixed duopoly with price competition. In K. Ohnishi, Firms' Strategic Decisions: Theoretical and Empirical Findings, Volume 3 (pp. 144-153). Sharjah, UAE: Bentham Science Publishers.
Ohnishi, K. (2020). Price-setting mixed duopoly, subsidization and the order of firms' moves: the relevance of privatization. Economics Bulletin 40 (4), 3071-3076.
White, M. D. (2001). Managerial incentives and the decision to hire managers in markets with public and private firms. European Journal of Political Economy, 17, 887-896.

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