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Privatization and efficiency in a differentiated industry

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  • ANDERSON, S. P.
  • de PALMA, A.
  • THISSE, J.-F.

Abstract

We consider a market in which a public firm competes against private firms, and ask what happens when the public firm is privatized. In the short run, privatization is harmful because all 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 welfare to be higher in the long run, is that the public firm makes a loss. Profitable firms should not be privatized, in contrast with frequent practice.
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Suggested Citation

  • ANDERSON, S. P. & de PALMA, A. & THISSE, J.-F., 1997. "Privatization and efficiency in a differentiated industry," LIDAM Reprints CORE 1298, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:1298
    DOI: 10.1016/S0014-2921(97)00086-X
    Note: In : European Economic Review, 41, 1635--1654, 1997
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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