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Privatization and Quality Differentiation with Excess Burden of Taxation

Author

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  • CHOI, Kangsik
  • LU, Xingyan

Abstract

Incorporating the excess burden of taxation into a mixed duopoly to evaluate privatization, we analyze Bertrand competition between the public and private firms producing goods of different qualities. We show that (i) when the only private (resp. public) firm offers high quality, privatization (resp. mixed duopoly) is desirable if the excess burden of taxation is sufficiently large, and vice versa. This implies that the governmentʼs role in implementing privatization goes in the opposite direction; (ii) if the excess burden of taxation is intermediate, privatization is preferable regardless of the public firmʼs quality.

Suggested Citation

  • CHOI, Kangsik & LU, Xingyan, 2025. "Privatization and Quality Differentiation with Excess Burden of Taxation," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 66(2), pages 93-112, December.
    • Handle: RePEc:hit:hitjec:v:66:y:2025:i:2:p:93-112
    DOI: 10.15057/hje.2025005
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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