Strategic incentives in a subsidized mixed duopoly

This paper investigates the effect of production subsidies in a mixed duopoly in which the owners of firms provide strategic incentives to their managers. When the asymmetric subsidy is introduced to the public firm, it is shown that neither industry output nor welfare can be changed. this means that the optimal level of such subsidy in a mixed duopoly must be zero. Furthermore, unlike previous studies, it is shown that the government should privatize the public firm by arranging for an asymmetric subsidy when there are two firms in a market