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Abstract

This paper models the behavior of private firms in a parallel consumer goods market. The state sector is characterized by a fixed quantity, quality and price of output while the private sector strategically chooses its quality and quantity. The private sector response to a marginal cut-back in state provision of consumer goods is analyzed for the possible regimes of an excess-demand equilibrium. It is shown that this cut-back, unaccompanied by transfers of assets or materials to the private sector, may increase public welfare.

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