21 Pages Posted: 28 Mar 2011
Date Written: October 21, 2006
This paper investigates the preference for the Stackelberg leader/follower roles in a mixed duopoly, where a welfare-maximizing public firm competes with a profit-maximizing private firm. In contrast to the well known relationship in a private duopoly, we demonstrate that if a firm’s reaction function slopes upward, the firm will always prefer being the leader, whatever the slope of its rival’s reaction function. This holds not only for the public firm but also for the private firm. Furthermore, if both firms have downward-sloping reaction functions, then if one prefers to be the leader, the other must prefer to be the follower.
Keywords: Mixed duopoly, Stackelberg leader/follower, reaction function
JEL Classification: L00, D00
Suggested Citation: Suggested Citation