I THEORETICAL BACKGROUND Mussa and Rosen 1978 and

I. THEORETICAL BACKGROUND • Mussa and Rosen (1978)’ and R Acharyya’s Monopoly market and product quality focuses on the class of monopoly pricing problems involving product line, a quality-differentiated spectrum of goods of the same generic type. • Motta (1993)’s rendition of the model in Sutton (1991), with fixed quality-dependent costs and Grilo (1994) is, to our knowledge, the first work that studied duopolistic mixed competition when products are vertically differentiated and firms choose non-cooperatively first qualities and then prices. • In Sanjo, Y. (2009), “Bertrand Competition in a Mixed Duopoly Market” paper present an analysis of the Hotelling-type spatial competition model with simultaneous or sequential price choice in a mixed duopoly. • Amacher et. al. (2005). Koji and Toyokazu. Matsumura (1998), Ming Hsin, L. (2007), Ohnishi (2010) Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 2

II. MONOPOLY MARKET Consider, i th consumer’s utility function is given by: Demand of high quality product Demand of low quality product is zero (not buy) Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 3

Full Nationalization Model Consider, public firm as a high quality provider in a monopoly market. Public firm’s purpose is to be welfare maximization. Therefore, We find quality (s) to use first order condition of welfare. Suppose that the private owners hold percent shares of the public firm and the government percent shares; the board consists of percent directors who propose policies to maximize profits and percent directors to maximize welfare. When correspond to full nationalization (welfare maximization) Objective function T is given by: FOC of welfare function (depend on s): Public firm’s profit is more than own fixed costs. Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 4

Full Privatization Model Consider, domestic private firm as a high quality provider in a monopoly market. We find producer’s price p and the quality s from the first order condition of profit function, because domestic private firm’ purpose is profit maximization. In case of corresponds to full privatization (profit maximization) Firm’s objective function T is given by: FOC of domestic private firm’s profit function (s): Domestic private firm’s profit is more than own fixed costs. Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 5

Comparisons We compare the results of welfares under full nationalization and full privatization Policies Profit/Welfare Conditions of positive profit (welfare) Full nationalization 0. 0234 -K 0. 0703 -K 0<K<0. 0234 Full privatization 0. 0312 -K 0. 0625 -K 0<K<0. 0312 Our choices are if full nationalization in the fixed cost to 0. 0234, and if full privatization in the fixed cost 0. 0234 to 0. 0312. The fixed cost is impossible will more than the 0. 0312, because social welfare is positive though profit will negative. Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 6

III. DOMESTIC MIXED MARKET Demand of high quality product Consider, i th consumer’s utility function is given by: Where H is high quality and L is low quality Demand of low quality product Demand is zero (not buy) Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 7

III. DOMESTIC MIXED MARKET Taking and as given, the first-order conditions for profit maximization yield. Equilibrium price substituting to profit functions: Profit of the domestic private firm as a low quality provider: Profit of the public firm as a high quality provider: Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 8

Competition of public firm and domestic private firm Social Welfare is a summation of consumer surplus and profits of each firm: Outcomes of domestic mixed duopoly market So, for a set of the fixed costs, we will choice low quality domestic private function : Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 9

Competition of both domestic private firms Welfare is the summation of the consumer surplus and profits of each firm: The first order conditions for maximization of a respectively profit function of low quality domestic private firm given by: Also, profit function of high quality domestic private firm given by: The next step is finding high and lower quality So, choice the minimum profit for a set of fixed costs: Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 10

Comparisons In this section show comparison results, competition of public firm and domestic private firm also competition of both domestic private firms. Policies Domestic mixed duopoly market Welfare Conditions of positive welfare 0 < K < 0. 0016 0 < K < 0. 0015 We can choices fixed cost to 0. 0015 in cases of chapter 3, but we chose is maximizing welfare. So, optimal welfare is competition of public firm and domestic private firm when fixed cost 0 to 0. 0016. So, the optimal choice is only (competition of public firm and domestic private firm). Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 11

IV. INTERNATIONAL MIXED MARKET Demand of high quality product Consider, i th consumer’s utility function is given by: Where H is high quality and L is low quality Demand of low quality product Demand is zero (not buy) Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 12

Competition of public firm and foreign private firm : In this case, public firm and foreign firms are producing quality differentiated products when a public firm as a high quality provide and foreign firm as a low quality provide. Social welfare is a summation of consumer surplus and profit of domestic firms: FOC, profit of foreign firm with quality: Similarly public firm maximizes The next is for the calculation of high and low quality Public firm’s profit is more than foreign private firm’s profit. So, choice the profit of the foreign private firm for set of fixed costs: Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 13

Competition of domestic private firm and foreign firm : Social welfare is a summation of consumer surplus and profit of domestic firms: FOC, for maximization of a respectively profit function of domestic private firm given by: Similarly foreign private firm maximizes profit The next is for the calculation of high and low quality Domestic private firm’s profit is more than foreign private firm’s profit. So, choice the foreign private firm’ profit for set of fixed costs: Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 14

Comparisons In this section, comparison of welfares when competition of public firm and foreign private firm, also competition of domestic private firm and foreign private firm. Policies International mixed duopoly market Welfare Conditions of positive welfare 0 < K < 0. 0017 0 < K < 0. 0015 First choice is competition of public firm and foreign private firm in the fixed cost 0. 0015 to 0. 0017. But optimal welfare is competition of public firm and foreign firm in the fixed cost 0 to 0. 0017. Policy of the full privatization welfare is very smaller than the welfare of competition of public firm and foreign private firm. So, we choice is only (competition of public firm and foreign private firm). Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 15

V. SUMMARY [1] Table shows that fixed cost and welfares are inverse functions. In the result, Welfare is optimal when public firm as a high quality and domestic private firm as a low quality. See Intersection point of w 3 and w 5 lines. Policies Public firm in a monopoly market (w 1) Private domestic firm in a monopoly market (w 2) Competition of domestic duopoly market (w 3) Competition of international duopoly market (w 5) Welfares 0. 0703 - K 0. 0625 - K 0. 0771 -2 K 0. 0754 -K Regions 0 < K < 0. 0234 0 < K < 0. 0312 0 < K < 0. 0016 0 < K < 0. 0017 The policy of the welfare maximization is: 1. The choice is competition of public firm and foreign firm in the fixed costs 0. 0014 to 0. 0017 2. Maximized welfare came be achieved by full nationalization in a monopoly market with the fixed costs between 0. 0017 and 0. 0234. 3. Optimal privatization is full privatization in a monopoly market with the fixed costs between 0. 0234 and ( 0. 0312. 4. No choice any market 5. The choice is competition of public firm and domestic private firm in the fixed cost 0 to 0. 0014 Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 16

OPTIMAL WELFARES w 0. 0771 0. 074 0. 0738 0. 0686 0. 0469 0. 0391 0. 0313 0 0. 0014 0. 0017 0. 0234 Competition Policy of Mixed Duopoly Market JIGJID Shirbazar (MA) K Privatization Policy Domestic private firm in a Monopoly Market Public firm and foreign firm Public firm and domestic private firm Tuesday, November 3, 2020 No Policy 0. 0312 17

VI. CONCLUSION We can make decision choices of nationalization, privatization, or even compete with each other based on a quality differentiation model for welfare maximization. Only one kind of product is produced in the monopoly market, and two different quality products, high and low, are produced in the duopoly market. The public firm provides only high quality product in the market, because the low quality product does not affect in welfare. So, welfare is less when public firm as a low quality provider than when public firm as a high quality provider. Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 18

THANK YOU Tuesday, November 3, 2020 JIGJID Shirbazar (MA) 19