Cournot vs Stackelberg Equilibria with a Public Enterprise and International Competition

University of Nottingham Economics Discussion Paper No. 03/12

23 Pages Posted: 29 Oct 2003

See all articles by Richard C. Cornes

Richard C. Cornes

Australian National University (ANU) - Faculty of Economics & Commerce; CESifo (Center for Economic Studies and Ifo Institute)

Mehrdad Sepahvand

University of Nottingham - School of Economics

Date Written: July 2003

Abstract

This paper examines the validity of alternative assumptions about public enterprise strategies in the presence of both domestic and international competition. It extends the quantity-setting game to a preplay stage and endogenizes the firms' order of moves to show that i) Cournot competition is not the subgame perfect Nash equilibrium of the extended game, ii) the only SPN equilibria are sequential and iii) for some values of structural parameters, public Stackelberg leadership is the unique SPN equilibrium solution of the game. This has a significant consequence for debates over privatisation because with a public Stackelberg leadership game, there is no distortionary effect associated with the operation of a public enterprise in the domestic market.

Keywords: Privatization, International Mixed Oligopoly

JEL Classification: D43, L33, L13

Suggested Citation

Cornes, Richard C. and Sepahvand, Mehrdad, Cournot vs Stackelberg Equilibria with a Public Enterprise and International Competition (July 2003). University of Nottingham Economics Discussion Paper No. 03/12. Available at SSRN: https://ssrn.com/abstract=451940 or http://dx.doi.org/10.2139/ssrn.451940

Richard C. Cornes (Contact Author)

Australian National University (ANU) - Faculty of Economics & Commerce ( email )

Canberra, Australian Capital Territory 2601
Australia

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Mehrdad Sepahvand

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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