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SUBSIDIZATION AND BARGAINING IN MIXED OLIGOPOLIES

Authors


  • Cai Dapeng acknowledges financial support from the Grant-in-aid (23730232), the Japanese Ministry of Education, Culture, Sports, Science and Technology, the Inamori Foundation and the Nomura Foundation. Li Jie acknowledges financial support from the Project of Humanities and Social Sciences for Young Scholars, the Chinese Ministry of Education (10YJC790130). The authors wish to thank Ryuhei Okumura, Makoto Tawada, Katsuyoshi Okui, and the anonymous referee for their valuable comments. The authors are, of course, entirely responsible for all remaining errors.

ABSTRACT

In this paper, we consider political interaction in a mixed oligopoly by characterizing how a subsidy is endogenously determined through the bargaining process between firms and politicians. We discuss how the nature of the political equilibrium changes with the type of competition, the specification of the cost function, and the timing of the game. We show that when bargaining between firms and politicians takes place, the resulting social welfare may be even worse than that under a public firm monopoly.

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