Coopetition in a Mixed Duopoly Market

This study aims to investigate the impact of privatization on the degree of cooperation and competition in a mixed duopoly market. In this market, one semipublic firm and one private firm determine the level of two types of effort: the cooperative effort made to enlarge the total market size and the competitive effort made to increase market share. In a contest framework, our results show that the competitive effort level of the semipublic firm is smaller than that of the private firm. The more the semipublic firm is concerned for social welfare, the less it competes. On the basis of average costs, we then identify the conditions in which only the semipublic firm undertakes cooperative effort while the private firm behaves as a free rider. Besides, contrarily to common belief, our results highlight that a bad level of privatization may favor the most the free rider. Furthermore, we find that the semipublic firm always expends more cooperative effort than does the private firm.

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