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Privatization and efficiency: a mixed oligopoly approach

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  • Tai-Liang Chen

    (Zhongnan University of Economics and Law)

Abstract

While models of mixed oligopoly have been analyzed within a rapidly growing literature, little is known about the mechanism of efficiency improvement relating to partial privatization. In this paper, we endogenize efficiency improvement in relation to the level of privatization. We show that in the short run, an improvement in efficiency associated with a state-owned firm reduces the output substitution among firms, and that the reduction in output substitution effect is proportional to the strength of the improvement in efficiency. Specifically, if the effect of efficiency improvement is sufficiently small, the magnitude of the improvement of social welfare is reduced. In the literature, the optimal policy in the long run is full nationalization. However, we argue that the optimal policy for a state-owned firm is partial privatization. Moreover, efficiency improvement provides the impetus for indirect entry regulation of private entrants.

Suggested Citation

  • Tai-Liang Chen, 2017. "Privatization and efficiency: a mixed oligopoly approach," Journal of Economics, Springer, vol. 120(3), pages 251-268, April.
  • Handle: RePEc:kap:jeczfn:v:120:y:2017:i:3:d:10.1007_s00712-016-0502-8
    DOI: 10.1007/s00712-016-0502-8
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    More about this item

    Keywords

    Cost differentials; Efficiency-enhancing effect; Mixed oligopoly; Privatization;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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