Author(s)

Yasunori Ishii

Graduate School of Economics, Waseda University, Tokyo, Japan.

Modeling a duopoly in which a private firm and a public firm endogenously decide their product qualities and outputs under a privatization policy of a public firm by government, we analyze relationships between the privatization degree of the public firm and firms’ product quality choices. For establishing a more actual model we adopt more generalized demand functions including firms’ product qualities as variables. We find that a rise in the privatization degree of the public firm lowers the public firm’s product quality, whilst it raises the private firm’s one. We also show that the product quality of the public firm is not always inferior to that of the private firm, depending on their production and product quality technologies. Furthermore, we demonstrate that when the firms’ production and product quality technologies are identical to each other, the product quality of the public firm is always superior to that of the private firm.

Duopoly Composed of Private and Public Firms, Firms’ Endogenous Quality Choices, Privatization

Ishii, Y. (2018) Quality Rivalry in an Industry Composed of Private and Public Firms under Privatization. Open Journal of Social Sciences, 6, 29-42. doi: 10.4236/jss.2018.67003.