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Subsidizing purchases of public interest products: a duopoly analysis under a subsidy scheme. (English) Zbl 1409.91166

Summary: We investigate a symmetric duopoly setting in which two manufacturers produce the traditional and public interest (PI) products under a government’s subsidy scheme. A higher subsidy can increase the sale of the PI product but reduce the sale of the traditional product. Then, we study an asymmetric setting in which a manufacturer produces one of the two products and the other manufacturer produces both products. The government’s optimal subsidy is increasing in the marginal externality of the PI product.

MSC:

91B54 Special types of economic markets (including Cournot, Bertrand)
91B18 Public goods
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