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OWNERSHIP VERSUS TIMING OF THE GAME
Author(s) -
SEPAHVAND MEHRDAD,
CORNES RICHARD C.
Publication year - 2007
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/j.1467-8454.2007.00321.x
Subject(s) - stackelberg competition , inefficiency , cournot competition , economics , microeconomics , oligopoly , subsidy , distortion (music) , subgame perfect equilibrium , order (exchange) , first mover advantage , welfare , sequential game , game theory , industrial organization , market economy , amplifier , cmos , finance , electronic engineering , engineering
This study examines the impact of timing of the game on the welfare gains of privatisation in the presence of strategic trade policy. We argue that only if the public enterprise acts as a Cournot player will it generate an additional distortion that could outweigh the distortion caused by the oligopolistic behaviour of private firms. But with a first‐mover advantage it can serve as an effective regulatory device comparable with a production subsidy. We further show that, in the presence of strategic trade policy, Cournot assumptions are inconsistent with the firms’ preferences over the timing of the game. As public Stackelberg leadership is a subgame Nash equilibrium of the extended game with endogenous order of moves, we conclude that it is the timing of the game rather than firms’ ownership structure which is responsible for the inefficiency of an international mixed market found by earlier studies.