Price or quantity? The strategic choice of subsidized firms in a mixed duopoly

This paper investigates the endogenous choice of the strategic variable, price or quantity, taken in a mixed duopoly by a public and a private firm prior to market competition. While Matsumura and Ogawa (2012) in a standard mixed duopoly find that price is the unique equilibrium, we show that, by introducing firm subsidization in the same setting, quantity can constitute a dominant strategy equilibrium.

► We investigate the endogenous choice of the competition strategy. ► We assume that a public firm competes against a private firm. ► We assume that firms are subsidized by the government. ► Quantity can constitute a dominant strategy equilibrium.