2007/1/15 早稲田大学 1 早稲田大学連続セミナー 第１回 Mixed Oligopoly: Overview 早稲田大学連続セミナー 第１回 Mixed Oligopoly: Overview 今日の講義の目的 （１）混合寡占の基本的な発想を理解する （２）厚生最大化行動が必ずしも厚生最大化をも たらさないメカニズムを理解する

2007/1/15 早稲田大学 2 Outline of the first Lecture 1-1 State-Owned Public Firm and Mixed Oligopoly 1-2 Public Monopoly 1-3 Production Substitution 1-4 Privatization and Welfare Implications 1-5 Partial Privatization 1-6 Long-Run Competition and Mixed Oligopoly

2007/1/15 早稲田大学 3 Mixed Oligopoly, Mixed Market State-owned Public firms compete against private firms State-owned Public firms compete against private firms

2007/1/15 早稲田大学 4 Examples of Mixed Oligopoly in Japan Examples of Mixed Oligopoly in Japan Banking: Postal Bank, DBJ, Iwate Bank Housing Loan: Public House Loan Corporation Private Funds: DBJ, Industrial Revitalization Corporation of Japan Life Insurance: Postal Life Insurance (Kampo) Overnight Delivery: Japan Post Energy: Public Gas Corps (Sendai, Narashino, Kanazawa,Fukui,...) Broadcasting: NHK

2007/1/15 早稲田大学 5 Examples of Mixed Oligopoly in Other Countries Examples of Mixed Oligopoly in Other Countries Banking: Postal Banks (New Zealand, U.K., Germany,...) Automobiles: Renault, VW Medicine: Public Institute in Brazil National Defense, Aviation: EADS, Airbus Airline: National airlines (Swiss, Belgian, France,...) Overnight Delivery: USSP Energy: Electricite de France, Gas de France Broadcasting: BBC

2007/1/15 早稲田大学 6 Differences between Public and Private Firms Differences between Public and Private Firms (1)Public firms are less efficient than private firms. →Many empirical works do not support this view (and many other papers do support this view). (2) Difference of objective function →Private firms maximize their own profits, whereas public firms might care about social welfare.

2007/1/15 早稲田大学 7 Classical Discussions of Public Firms Classical Discussions of Public Firms Why do public firms exist? (1) Natural monopoly (a) Public firm monopoly (b) Regulated private firm monopoly

2007/1/15 早稲田大学 8 Natural Monopoly P Ｙ AC D 0

2007/1/15 早稲田大学 9 Classical Discussions of Public Firms(2) Classical Discussions of Public Firms(2) Why do public firms exist? (2) Unprofitable market (a) Public firm monopoly (b) Private firm monopoly with subsidy (compensation of deficit from public funds)

2007/1/15 早稲田大学 10 Non-Profitable Market P Y AC D 0

2007/1/15 早稲田大学 11 Classical discussions on state-owned public firms →Public firm is the monopolist In real economies, public firms are not always monopolists. Public firms do not always face significant economy of scale, which guarantees monopoly by the public firm Monopoly by the Public Enterprise

2007/1/15 早稲田大学 12 Problem(1) (1) How to provide incentives for welfare maximization? → This is the central issue for the public firm's monopoly

2007/1/15 早稲田大学 13 Problem(2) (2) Is the welfare-maximizing behavior by the public firm efficient? →This problem never appears in the public firm's monopoly. This question makes sense in mixed oligopoly because welfare-maximizing behavior by the public firm might worsen welfare through strategic interaction between public and private firms. →This is the central issue of mixed oligopoly

2007/1/15 早稲田大学 14 Issues of mixed oligopoly Issues of mixed oligopoly ・ Is welfare-maximizing behavior by the public firm desirable in mixed oligopoly ? ・ What distortion does welfare-maximizing behavior by the public firm yield ?

2007/1/15 早稲田大学 15 De Fraja and Delbono(1989) De Fraja and Delbono(1989) (1) Cournot-type (quantity-setting competition, simultaneous-move, no product differentiation) (2) No cost difference between public and private firms. (3) Linear demand and Quadratic cost function. (4) The private firm maximizes its own profits given outputs of other firms. (5) The public firm maximizes social welfare given outputs of other firms. →The public firm chooses its output level so that the price equals to its marginal cost.

2007/1/15 早稲田大学 16 Results Results Compare the pure economy (after the privatization) to the mixed economy (before the privatization) →Privatization of the public firm might improve welfare W P >W M or W P <W M.

2007/1/15 早稲田大学 17 Intuition (1) Privatization of the public firm reduces public firm's output q 0 (2) Privatization increases private firm's output q 1 →production substitution from the public firm to the private firm. (3) Privatization decreases total output q 0 +q 1 Effects (1) and (3) reduces welfare and effect (2) improves welfare. Effect (2) may be the strongest, leading to an improvement of welfare.

2007/1/15 早稲田大学 18 Production Substitution q1q1 reaction curve after privatization reaction curve of the private firm 0 reaction curve before privatization q0q0

2007/1/15 早稲田大学 19 More detailed explanation of intuition Privatization of the public firm reduces q 0 and increases q 1 (production substitution). Before Privatization p=c 0 ' >c 1 ' →Public firm's marginal cost is higher than private firm's → Production substitution from public to private economizes production costs →Welfare-improving →Privatization reduces total production level and so consumer surplus → Welfare-reducing It is possible that the former effect dominates the latter effect.

2007/1/15 早稲田大学 20 Contributions Contributions (1) No cost difference between public and private firms → privatization does not improve production efficiency (2) Public firm's objection: welfare →No agency problem in the public firm (3) No additional policies by regulation, tax, or subsidy ⇒Ideal circumstances for the existence of public firm. Against assumptions for the advocators of privatizations. → Nevertheless, privatization might improve welfare

2007/1/15 早稲田大学 21 Assumptions Assumptions Many researchers in this field believe that the assumptions above are plausible, but many other researchers (as well as I) make these assumptions for strategic purposes. (1) Even without cost differences, privatization improves welfare. →If public firm is less efficient, much more. (2) Even without any agency problem in the public firm, privatization improves welfare. →If public firm has agency problem, much more.

2007/1/15 早稲田大学 22 Why quadratic costs？ Constant marginal cost yields problems If marginal costs are constant and no cost differences exists, the public firm's monopoly yields the first best. → It is nonsense to discuss mixed oligopoly in such a circumstance.

2007/1/15 早稲田大学 23 How to avoid this problem? (1) Using constant marginal costs and assuming cost differences between public and private firms. Mujumdar and Pal (1998)、Pal (1998), Matsumura (2003) (2) Using increasing marginal costs. De Fraja and Delbono (1989), Fjell and Pal (1996),Matsumura and Kanda (2005). (3) Dropping the assumption of homogenous goods. Cremer et al. (1991), Anderson et al. (1997), Matsumura and Matsushima (2003, 2004), Matsushima and Matsumura (2003, 2006).

2007/1/15 早稲田大学 24 Ｍａｔｓｕｍｕｒａ(1998) Ｍａｔｓｕｍｕｒａ(1998) (1) Cournot-type (quantity-setting competition, simultaneous-move, no product differentiation) (2) No restrictions on the cost differences between public and private firms. (3) The objective function of the public firm is the weight sum of social welfare and its own profits. （Partial Privatization) U 0 = α W+ (1-α) π 0 (4) General demand and general cost. The government chooses α and then firms compete after observing α.

2007/1/15 早稲田大学 25 Results Results α =1 is optimal only if it yields public monopoly. →If we allow partial privatization, no privatization (full nationalization) never becomes optimal.

2007/1/15 早稲田大学 26 Intuition (1) Reducing α reduces public firm's output q 0. Since p=c 0 ', this effect is negligible (second order) ←envelope theorem (2) Reducing α increases private firm's output q 1 Since p=c 1 ', this effect is negligible (first order) ⇒(2) dominates (1).

2007/1/15 早稲田大学 27 Ｍａｔｓｕｍｕｒａ and Kanda(2005) Ｍａｔｓｕｍｕｒａ and Kanda(2005) Long-run analysis on mixed oligopoly (1) Cournot-type (quantity-setting competition, simultaneous-move, no product differentiation) (2) No restrictions on the cost differences between public and private firms. (3) The objective function of the public firm is the weight sum of social welfare and its own profits. U 0 = α W+ (1-α) π 0 (4) General demand and general cost (increasing marginal costs). (5) Free entry of private firms.

2007/1/15 早稲田大学 28 自由参入市場 自由参入市場 （１）政府が公企業（企業０）を作るか否かを 決める。 政府がそれを作る場合、設立費用としてF 0 かか る。 （２）政府は企業０に対する持ち株比率s∈ [0,1] を決め、間接的にαをコントロールする。 （３）各私企業はαを観察し、参入するか否かを 決める。各私企業は同質的である。 （４）私企業数が確定した後、参入した企業は Cournot競争。

2007/1/15 早稲田大学 29 （２）から始まる部分ゲーム （最適な α の分析） （２）から始まる部分ゲーム （最適な α の分析） αが与えられたもとで決まる内生変数： n（企業数）、q1（各私企業の生産量）、q0（公企 業の生産量）、Ｑ（総生産量） これらの変数に関する比較静学 (a) q1、Ｑ ともにαと独立 (b) q0はαの増加につれて増加する。 (c) nはαの増加につれて減少する。 政府の持ち株比率sの増加は公企業の生産量を増加 させ、参入企業数を減らすが、個別私企業の生産 量と公・私企業の総生産量に影響を与えない。

2007/1/15 早稲田大学 30 Free entry equilibrium P Y private firm's AC private firm's residual demand 0 private firm's output

2007/1/15 早稲田大学 31 an increase in α P Y private firm's AC private firm's residual demand 0 private firm's output long run ~ reduction of the number of private firms

2007/1/15 早稲田大学 32 Results Results α =1 is optimal.（公企業の生産量は適正であ る。） ←限界費用価格付けによって無駄な私企 業の参入が抑えられるから。

2007/1/15 早稲田大学 33 Intuition α をほんの少しあげる。 (1) Qは不変→消費者余剰は不変 (2) q 0 が増加→ 公企業の限界費用・Δq 0 だけ費用増加。 (3) nが減少→私企業の平均費用・私企業の１社あたり 生産量・Δnだけ費用増加 私企業の１社あたり生産量・Δn =Δq 0 私企業平均費用＝価格＞公企業の限界費用 ⇒αの引き上げで生産費用が削減される。(Welfare- improving production substitution)

2007/1/15 早稲田大学 34 公企業を設立すべきだったか 公企業を設立すべきだったか ・企業０の設立が経済厚生を改善する必要十分 条件はπ＞ 0である ～公企業が黒字であれば公企業を参入させるべ きだった。逆に赤字を生むような公企業は不要 だった。 ・公企業と私企業の生産性が同じなら公企業は 超過利潤を得られる。

2007/1/15 早稲田大学 35 No Cost Difference P Y MC AC 0 private firm's output public firm's output Public firm obtains positive profits