Effects of partial passive ownership on the desirable production timing of the public utility in a mixed upstream market

Abstract

AbstractWe consider partial passive ownership (PPO) between upstream and downstream private firms and examine an endogenous production timing of a public utility in a mixed upstream market. We show that the production timing will shift from simultaneous to sequential as the PPO level decreases when the private share of the public utility ownership is low, which is mostly socially desirable. We also show that a higher private share does not yield socially desirable production timing irrespective of the PPO level, while a lower private share under the public utility's followership (Cournot competition) is optimal and time‐consistent when the PPO level is low (high). Our findings suggest that public utility ownership can be used as an industrial policy tool to coordinate desirable production timing.