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Dismantling a State Monopoly: Insight from Theory

Author

Listed:
  • Octave Keutiben

    (Écoles des hautes éudes publiques, Université de Moncton, Canada)

  • Didier Tatoutchoup

    (Écoles des hautes éudes publiques, Université de Moncton, Canada)

Abstract

We analyze competition with taxation as an alternative to state monopoly by highlighting the importance of the industry's cost structure and the external cost of consuming the good. Under government revenue maximization assumption, competition is a better alternative to state monopoly if and only if the state monopoly has diseconomies of scale or is producing in the range of output where there are diseconomies of scale. The result is unchanged even when the government also accounts for the social cost of consuming the good. However, in this case, total output will be higher than the monopoly output only if the social cost of consuming the good is too small, that is it is lower than a determined threshold value. Interestingly, the analysis also showed that under both assumptions, oligopoly is a better alternative to state monopoly than perfect competition.

Suggested Citation

  • Octave Keutiben & Didier Tatoutchoup, 2019. "Dismantling a State Monopoly: Insight from Theory," Economics Bulletin, AccessEcon, vol. 39(4), pages 2732-2745.
    • Handle: RePEc:ebl:ecbull:eb-19-00703
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2019/Volume39/EB-19-V39-I4-P255.pdf
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    References listed on IDEAS

    as
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    3. Katja Seim & Joel Waldfogel, 2013. "Public Monopoly and Economic Efficiency: Evidence from the Pennsylvania Liquor Control Board's Entry Decisions," American Economic Review, American Economic Association, vol. 103(2), pages 831-862, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    State monopoly; Liberalization; Optimal taxation; Externalities;
    All these keywords.

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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