ABSTRACT
While so far the discussion has focussed on models where the industry is populated by private firms acting as pure profit-maximizing units, this chapter deals with two types of mixed markets. The first version is an adaptation of the traditional debate concerning the role of public firms as regulatory instruments in oligopolistic industries (see Cremer et al., 1989; de Fraja and Delbono, 1989, 1990). The ‘old’ debate can indeed be extended to include environmental effects, to show that the presence of even a single public firm internalizing externalities may have beneficial effects, perhaps even drive the industry to replicate the first best, under ideal conditions. I will treat this theme very briefly, as the existing literature on this point is scanty.
