Cost‐reduction innovation under mixed economy

This paper analyzes the innovation strategies of mixed duopoly with a (semi‐) public firm and a private firm, and the welfare effects of public ownership are captured. The findings indicate that the private firm is more active in research and development activities than the (semi‐) public firm. Meanwhile, the total production increases with the degree of public ownership, and both firms have to suffer losses in profits. From the viewpoint of social welfare, partial nationalization is the optimal strategy. The policy implication of the findings highlights that partial nationalization should be encouraged under mixed economy.