Privatization, Mixed Duopoly and Quality Differentiation with Excess Burden of Taxation

Incorporating the excess burden of taxation into a mixed duopoly to evaluate privatization, we analyze competition of the public and private firms producing goods of different qualities between Cournot and Bertrand competition. When the only private firm offers a high quality, (i) under both Bertrand and Cournot competition, it is desirable to choose privatization if the the excess burden of taxation is sufficiently large, and vice versa; however, (ii) if the excess burden of taxation is intermediate, it is desirable to choose reversely with regard to the policy of privatization between Bertrand and Cournot competition. On the other hand, when the only public firm offers a high quality, (i) under Cournot competition, it is always desirable to choose mixed duopoly rather than privatization; (ii) under Bertrand competition, it is desirable to choose mixed duopoly if the excess burden of taxation is sufficiently large, and vice versa. JEL Classification: D43, L13, M21.