Working Papers

  • Pleasing Voters and Making Money: a Public Firm's Business
    A private firm competes with a partially privatized public firm in a game of endogenous product differentiation where quality is costly. The public firm cares about the median voter's utility . The model shows that: (i) depending on the degree of privatization, the public firm could make a negative profit but could also make more profit than the private competitor; (ii) the socially optimal degree of privatization is interior; (iii) the public firm prefers to produce the lower quality good when there are positive externalities.