Product and Quality Differentiation in Endogenous  Choices of Delegation under Mixed Markets

We analyze the effects of product and quality differentiation on endogenous delegation under Cournot competition in a mixed duopoly. Regardless of which firm produces the high-quality product, asymmetric delegation always arises: the public firm delegates while the private firm does not, unless the quality level of either the private or public firm is very low. However, when the quality of either firm is sufficiently low, the private firm delegates while the public firm does not. Consequently, irrespective of which firm produces the high-quality product, social welfare and consumer surplus are higher when only the private firm hires a manager than when only the public firm does, whereas producer surplus is lower. These results remain robust even when cost asymmetry between firms is introduced. JEL Classification: D43, L13, M21.