VERTICALLY DIFFERENTIATED MIXED OLIGOPOLY WITH QUALITY-DEPENDENT FIXED COSTS

The paper studies duopolistic competition when firms face fixed quality-dependent costs of production and one of the two firms targets (at least in the long run) welfare maximization. We show that mixed oligopoly is in general socially desirable compared with a private duopoly regardless of the type of competition in the short run and the equilibrium quality ranking. In addition, the nationalization of one of the firms seems to be a more efficient regulatory instrument than the adoption of minimum quality standard or subsidization of the high-quality provider.