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Privatization and Efficiency in a Differentiated Industry

Author

Listed:
  • ANDERSON, Simon

    (University of Virginia)

  • de PALMA, André

    (THEMA, Université de Cergy-Pontoise)

  • THISSE, Jacques-François

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium and CERAS-ENPC)

Abstract

We consider a market in which a public firm competes against private ones, and ask what happens when the public firm is privatized. In the short run, privatization is harmful because prices rise: the disciplinary role of the public firm is lost. In the long run, privatization leads to further entry; the net effect is beneficial if consumer preference for variety is not too weak. A sufficient statistic for the social surplus to he higher in the long run is that the public firm makes a loss. This suggests that profitable firma should not necessarily be privatized.

Suggested Citation

  • ANDERSON, Simon & de PALMA, André & THISSE, Jacques-François, 1996. "Privatization and Efficiency in a Differentiated Industry," LIDAM Discussion Papers CORE 1996045, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1996045
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp1996.html
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    Keywords

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    JEL classification:

    • 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
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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