Mixed Oligopoly, Foreign Firms, and Location Choice


We investigate a mixed market in which a state-owned, welfare-maximizing public firm competes against profit-maximizing n domestic private firms and m foreign private firms. A circular city model with quantity-setting competition is employed. We find that the equilibrium location pattern depends on m. All private firms agglomerate in the unique equilibrium if m is zero or one. Two foreign firms induce differentiation between domestic and foreign private firms. More than two foreign firms yield differentiation among foreign firms. Regardless of n and m, the agglomeration of all domestic private firms appears in equilibrium. We provide several conditions in which eliminating the public firm from the market enhances social welfare.

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