Capacity Choice in an International Mixed Triopoly

ABSTRACT

This paper considers a mixed triopoly model where a state-owned firm, a domestic labor-managed firm and a foreign capitalist firm are allowed to pre-install capacity as a strategic commitment device. First, each firm can choose its capacity level simultaneously and independently. None of the firms can reduce or dispose of capacity. Second, each firm chooses its output level simultaneously and independently. The paper presents the equilibrium outcomes of the international triopoly model. We find that the equilibrium outcomes are not profitable for the foreign capitalist firm.

KEYWORDS:

• Excess capacity
• state-owned firm
• domestic labor-managed firm
• foreign capitalist firm

JEL CLASSIFICATIONS:

• C72
• D21
• F23
• L30

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 We assume that the firms share the same cost function and the marginal cost of production is increasing. This assumption is often used in literature studying mixed oligopoly markets (for example, Harris & Wiens, 1980; Ware, 1986; Delbono & Rossini, 1992; Delbono & Scarpa, 1995; Fjell & Pal, 1996; White, 1996; Pal & White, 1998; Poyago-Theotoky, 1998; Fjell & Heywood, 2002; Bárcena-Ruiz & Garzón, 2003; Matsumura & Kanda, 2005; Ohnishi, 2008; Hsu et al., 2018). If the marginal cost of production is constant or decreasing, then firm S produces an output such that price equals marginal cost and results in a public monopoly.