TITLE:
Optimal Funding Strategy and Quality Competition in a Mixed Oligopoly
AUTHORS:
Jialiang Fu, Hongjin Xiang, Xiaoxian Hou
KEYWORDS:
Funding Scheme, Quality Competition, Quality Gap, Mixed Oligopoly
JOURNAL NAME:
Theoretical Economics Letters,
Vol.13 No.4,
August
17,
2023
ABSTRACT: We study the optimal strategy of a public funding scheme in a mixed
oligopoly market with one welfare-maximizing public provider and two
heterogeneous private providers with distinguishing marginal costs, where all
providers compete on quality and where providers included in the funding scheme
gain quantity compensation. We find that the first-order optimal solution can
only be implemented when the private providers are included in the funding
scheme. However, an increase in the private providers’ homogeneous quantity
compensation has no effect on the quality gap or price gap between the two
private providers, while the increase in the heterogeneous one will impact both
the quality and price gap.