Strategic Managerial Delegation and Industrial Policy Competition in Vertically-Related Markets
International Review of Economics and Finance, doi:10.1016/j.iref.2016.01.006
24 Pages Posted: 2 Dec 2015 Last revised: 20 Mar 2016
Date Written: November 27, 2015
Abstract
In a successive duopoly in which all firms are private except the home upstream SOE, we show that if the SOE is less efficient than its foreign rival, the home managerial delegation policy will force the SOE to price below marginal cost; otherwise, it will resort to marginal cost pricing to force out its rival. Both upstream firms will not be pure profit maximizers and will compete in profit and sales. The home government will subsidize its downstream firm if the market is large or the foreign rival's output is small. The foreign government will always subsidize its downstream firm.
Keywords: Vertically Related Markets; International Mixed Duopoly; Managerial Delegation; Production Subsidy
JEL Classification: D21, H21, H44, L21, L30
Suggested Citation: Suggested Citation