We study a mixed duopoly in which firms compete in advertising and quantity. The sum of informative advertising undertaken often exceeds that in a private duopoly, and whenever this happens the presence of the public (i.e., government) firm decreases social welfare. Surprisingly, the public firm may increase its advertising as the cost of advertising increases. Moreover, the basic insight that the public firm can increase advertising and reduce welfare remains when there are advertising spillovers, in a case with a foreign rival, and in an illustration of Bertrand competition.
Review of Industrial Organization – Springer Journals
Published: Aug 26, 2016
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