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Strategic Privatization and Regulation Policy in Mixed Markets

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Author Info
J Hindriks
D Claude

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Abstract

In this article, the authors consider mixed oligopoly markets for differentiated goods, where private and public firms compete either in price or quantity. This is a study of the welfare effect of privatization— interpreted as partial strategic delegation of the public firm to a private manager with profit concern. It is shown that partial privatization improves welfare with ‘quantity competition’ when goods are substitutes; and with ‘price competition’ when goods are complements. However, full privatization (complete delegation to private manager) can never be optimal. It is also shown that a public firm can make more profit than a private firm in equilibrium, and that this possibility is more likely under quantity competition. With regard to market regulation policy, it is articulated that (i) public and private firms should be taxed in the same manner; and (ii) price regulation is better than quantity regulation.

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Publisher Info
Article provided by Icfai Press in its journal The ICFAI Journal of Managerial Economics.

Volume (Year): IV (2006)
Issue (Month): 1 (February)
Pages: 7-26
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Handle: RePEc:icf:icfjme:v:04:y:2006:i:1:p:7-26

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June. [Downloadable!] (restricted)
  2. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter. [Downloadable!] (restricted)
  3. Cremer, Helmuth & Marchand, Maurice & Thisse, Jacques-Francois, 1991. "Mixed oligopoly with differentiated products," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 43-53, March. [Downloadable!] (restricted)
  4. Joanna Poyago-Theotoky, 2001. "Mixed oligopoly, subsidization and the order of firms' moves: an irrelevance result," Economics Bulletin, Economics Bulletin, vol. 12, pages 1-5. [Downloadable!]
  5. Fershtman, Chaim, 1985. "Managerial incentives as a strategic variable in duopolistic environment," International Journal of Industrial Organization, Elsevier, vol. 3(2), pages 245-253, June. [Downloadable!] (restricted)
  6. De Fraja, Giovanni, 1993. "Productive efficiency in public and private firms," Journal of Public Economics, Elsevier, vol. 50(1), pages 15-30, January. [Downloadable!] (restricted)
  7. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen. [Downloadable!] (restricted)
  8. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring. [Downloadable!] (restricted)
  9. Gareth Myles, 2002. "Mixed oligopoly, subsidization and the order of firms' moves: an irrelevance result for the general case," Economics Bulletin, Economics Bulletin, vol. 12, pages 1-6. [Downloadable!]
  10. Fershtman, Chaim, 1990. "The Interdependence between Ownership Status and Market Structure: The Case of Privatization," Economica, London School of Economics and Political Science, vol. 57(227), pages 319-28, August. [Downloadable!] (restricted)
  11. Cremer, Helmuth & Marchand, Maurice & Thisse, Jacques-Francois, 1989. "The Public Firm as an Instrument for Regulating an Oligopolistic Market," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 283-301, April. [Downloadable!] (restricted)
  12. Matsumura, Toshihiro, 1998. "Partial privatization in mixed duopoly," Journal of Public Economics, Elsevier, vol. 70(3), pages 473-483, December. [Downloadable!] (restricted)
  13. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December. [Downloadable!] (restricted)
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  14. de Fraja, Giovanni & Delbono, Flavio, 1989. "Alternative Strategies of a Public Enterprise in Oligopoly," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 302-11, April. [Downloadable!] (restricted)
  15. Richard G. Harris & Elmer G. Wiens, 1980. "Government Enterprise: An Instrument for the Internal Regulation of Industry," Canadian Journal of Economics, Canadian Economics Association, vol. 13(1), pages 125-32, February. [Downloadable!] (restricted)
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  1. Claude, Denis & Tidball, Mabel, 2006. "Efficiency inducing taxation for polluting oligopolists: the irrelevance of privatization," MPRA Paper 776, University Library of Munich, Germany, revised 15 Oct 2006. [Downloadable!]
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