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Privatizing by merger: The case of an inefficient public leader

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  • Gelves, J. Alejandro
  • Heywood, John S.

Abstract

We compare a merger between an inefficient public leader and an efficient follower with unilateral privatization of the public leader (both eliminate the inefficiency of the leader). We identify the circumstances in which the merger increases both welfare and private profit and, for the first time, show that partial privatization by merger often dominates the unilateral privatization despite the loss of a competitor. Recognizing this helps define the extent of partial privatization by merger that should actually be observed and also suggests that more policy emphasis should be placed on privatization by merger.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 27 (2013)
Issue (Month): C ()
Pages: 69-79

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Handle: RePEc:eee:reveco:v:27:y:2013:i:c:p:69-79

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Web page: http://www.elsevier.com/locate/inca/620165

Related research

Keywords: Privatization; Stackelberg leader; Merger paradox; Public firm;

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Citations

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Cited by:
  1. Chen, Yi-Wen & Yang, Ya-Po & Wang, Leonard F.S. & Wu, Shih-Jye, 2014. "Technology licensing in mixed oligopoly," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 193-204.
  2. Wang, Leonard F.S. & Lee, Jen-yao & Hsu, Chu-chuan, 2014. "Privatization, foreign competition, and social efficiency of free entry," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 138-147.
  3. Mukherjee, Arijit & Sinha, Uday Bhanu, 2014. "Can cost asymmetry be a rationale for privatisation?," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 497-503.

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