Abstract
We characterize the optimal policy-mix towards RDactivity and output production in the simultaneous moves mixed and private duopolies, as well as in the Stackelberg mixed duopoly. Our findings suggest that the government will opt for implementing jointly a tax on RDwith a subsidy on output to tackle the underlying market failures. Moreover, the optimal output subsidy, RDinvestment, output and welfare are identical irrespective of whether the public firm: (i) moves simultaneously with the private firm, (ii) is Stackelberg leader in RDand/or output, or (iii) is privatized and acts simultaneously with the private firm to maximize profits. Privatization reduces the optimal tax on Rbut leads to an increase in firms' profits. Finally, Stackelberg output leadership by the public firm induces an increase in RDtaxation, which is accompanied by a decrease in profits.