Publication
Title
Price competition between subsidized organizations
Author
Abstract
Many firms and organizations compete for customers while at the same time receiving substantial funding from outside sources, such as government subsidies. In this paper, we study the effects of two commonly observed subsidy systems on the strategic behavior of competing firms. We compare a per unit subsidy to a subsidy allocated according to the firms market shares. We show that, holding the total subsidy budget constant, the per unit subsidy results in lower prices, higher output, lower profits and higher overall welfare as compared to the market-share based alternative. However, we also find that a market-share based subsidy makes collusive behavior between firms much harder. Our results suggest a potential trade-off between short-run and long-run objectives: subsidy systems designed to widen participation may favor collusive behavior. The welfare implications of this trade-off are discussed. Our findings have important policy implications for the design of subsidy systems.
Language
English
Source (journal)
Journal of economics. - Wien, 1986, currens
Publication
Wien : Springer, 2013
ISSN
0931-8658 [print]
1617-7134 [online]
Volume/pages
109:2(2013), p. 117-145
ISI
000319451900002
Full text (Publishers DOI)
Full text (publishers version - intranet only)
UAntwerpen
Faculty/Department
Research group
Publication type
Subject
Affiliation
Publications with a UAntwerp address
External links
Web of Science
Record
Identification
Creation 05.06.2013
Last edited 04.05.2017
To cite this reference