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Author:

• Professor Guangliang YE
  Hanqing Advanced Institute of Economics and Finance
  Renmin University of China

Abstract:

We study a mixed duopoly in which firms compete both in advertising and quantity. The total amount of advertising undertaken differs from that in a private duopoly with the public firm often but not always advertising more than it would as a private firm. Critically, the presence of the public firm can decrease social welfare and always does so whenever it is associated with increasing the amount of informative advertising. Surprisingly, the public firm may increase its advertising as the cost of advertising increases.