Shubhranshu Singh is an Associate Professor of Marketing at Carey Business School, John Hopkins University, US. Detailed profile can be found here.
Carey Business School, John Hopkins University, US
November 04, 2024
Infrastructure Investment and Product Development in a Mixed Duopoly (click here).
Product development in certain consumption contexts can be fairly resource intensive. In such contexts, we observe government agencies make substantial infrastructure investments that enable product development and improve social welfare. In these contexts, it is also common to observe the presence of private firms that leverage government investments in infrastructure to develop products and generate profits. We construct a mixed oligopoly model to analyze the implications of such public-private interactions on infrastructure quality, product quality and prices. We have four main results: first, when it is optimal for the government to permit the entry of a private firm, the government invests more in developing infrastructure. Second, the quality received by the consumer might improve or worsen in the presence of a private firm, depending on the relative product development efficiency as well as cost of infrastructure development. Third, private presence can lead to a significant reduction in consumer surplus, especially at the lower end of the market. Fourth, depending on the relative product development efficiency of the private firm, the government might implement policies that prevent the private firm from entering the market. Finally, there exist circumstances under which private presence can be beneficial in that it leads to products that not only enhance social welfare but also improve overall consumer surplus.
