Price-setting mixed duopoly, subsidization and the order of firms' moves: the relevance of privatization

This paper first examines a price-setting mixed duopoly game with production subsidies where a public firm acts as a leader against a private firm. Second, the paper examines a price-setting duopoly game with production subsidies where the public firm remains a leader after privatization. Third, the paper compares the equilibrium values for private leadership with those for public leadership and shows that the optimal subsidy and economic welfare are higher in the privatized Stackelberg market than in the mixed Stackelberg market. In consequence, we find that our result makes a sharp contrast with that of quantity-setting market games.