Privatization and government preference in a Bertrand model

Ferreira, Fernanda A.; Ferreira, Flávio

http://hdl.handle.net/10400.22/9159

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Authors

Ferreira, Fernanda A.

Ferreira, Flávio

Abstract(s)

We will consider a mixed Bertrand duopoly model (that means, two ﬁrms decide simultaneously their prices for a substitutable good) to study the relationship between the privatization of a state-owned public ﬁrm and government preferences for tax revenue. In the model, we assume that the government imposes a speciﬁc tax rate on the quantity produced by each ﬁrm. Furthermore, the public ﬁrm aims to maximize social welfare, whereas the government's objective function is a weighted sum between social welfare and tax revenue. Of course, the private ﬁrm aims to maximize its own proﬁt. We also present comparative static results.