Mixed Oligopoly under Vertical Structure: Revisited

―From the Viewpoint of Optimal Investment Theory―

Abstract

　Deregulation is a first step in realizing a “growth strategy” to promote private sector investment and is often considered a powerful tool. One economic approach to this argument is the “mixed oligopoly” model. A typical conclusion therein is that privatization cannot be justified if the number of companies is not large. In this paper, we adopt to the mixed oligopoly model (1) an internalization approach of the “routine innovation” a la Baumol (2002) and (2) vertical structure which Hokari (2019) emphasizes as one of the characteristics of state-owned enterprises. As a result, in a “vertically integrated company” model, one of the typical form of vertical structure, it is shown that privatization is socially preferable even for the case of duopoly. This is because a privatized company makes cost-reducing investment and the total outputs increase.