Optimal Privatization Policy with Asymmetry among Private Firms

Haraguchi, Junichi and Matsumura, Toshihiro (2017): Optimal Privatization Policy with Asymmetry among Private Firms.

Abstract

We revisit the relationship between the optimal privatization policy and market competition indexes such as the Hirschman--Herfindahl index, which is affected by the number of firms and asymmetry of size among these firms: the larger the number of firms (the less asymmetry among firms), the lower the market concentration index. The literature on mixed oligopolies suggests that the optimal degree of privatization is increasing with the number of private firms (and, thus, decreasing with the market competition index), assuming that all private firms are homogeneous. We investigate how the asymmetry among private firms affects the optimal degree of privatization. We propose the simplest and natural model formulation for discussing asymmetry among private firms. We find that the optimal degree of privatization is either nonmonotone or monopolistically increasing (and, thus, never monopolistically decreasing) in the asymmetry among private firms.

• Item Type: MPRA Paper
• Language: English
• Keywords: market concentration index, asymmetry of private firms, mixed oligopolies
• Subjects: H - Public Economics > H4 - Publicly Provided Goods > H44 - Publicly Provided Goods: Mixed Markets; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L33 - Comparison of Public and Private Enterprises and Nonprofit Institutions ; Privatization ; Contracting Out; L - Industrial Organization > L4 - Antitrust Issues and Policies > L44 - Antitrust Policy and Public Enterprises, Nonprofit Institutions, and Professional Organizations

References

Barcena-Ruiz, Carlos, Juan, and Begona Maria Garzon (2005a) `Economic integration and privatization under diseconomies of scale.' European Journal of Political Economy 21(1), 247-67.

Barcena-Ruiz, Carlos, Juan, and Begona Maria Garzon (2005b) `International trade and strategic privatization.' Review of Development Economics 9(4), 502-13.

Bose, Arup, Debashis Pal, and David E. M. Sappington (2014) `The impact of public ownership in the lending sector.' Canadian Journal of Economics 47(4), 1282-311.

Cato, Susumu, and Toshihiro Matsumura (2012) `Long-run effects of foreign penetration on privatization policies.' Journal of Institutional and Theoretical Economics 168(3), 444--54.

Corneo, Giacomo, and Olivier Jeanne (1994) `Oligopole mixte dans un marche commun.' Annales d'Economie et de Statistique 33, 73-90.

De Fraja, Gianni, and Flavio Delbono. (1989) `Alternative strategies of a public enterprise in oligopoly.' Oxford Economic Papers 41:302-11.

Fjell, Kenneth, and Debashis Pal (1996) `A mixed oligopoly in the presence of foreign private firms.' Canadian Journal of Economics 29(3), 737-43.

Gil-Molto, Maria Jose, Joanna Poyago-Theotoky, and Vasileios Zikos (2011) `R&D subsidies, spillovers, and privatization in mixed markets.' Southern Economic Journal 78(1), 233-55.

Haraguchi, Junichi, and Toshihiro Matsumura. (2016) `Cournot-Bertrand comparison in a mixed oligopoly.' Journal of Economics 117(2):117-36.

Huang, Chia-Hui, and Chih-Hai Yang (2016) `Ownership, trade, and productivity in Vietnam's manufacturing firms.' Asia-Pacific Journal of Accounting and Economics 23(3), 356--371.

Ishida, Junichiro, and Noriaki Matsushima (2009) `Should civil servants be restricted in wage bargaining? A mixed-duopoly approach.' Journal of Public Economics 93(3-4), 634-46.

Lin, Ming Hsin, and Toshihiro Matsumura (2012) `Presence of foreign investors in privatized firms and privatization policy.' Journal of Economics} 107(1), 71-80.

Matsumura, Toshihiro (1998) `Partial privatization in mixed duopoly.' Journal of Public Economics 70(3), 473-83.

Matsumura, Toshihiro, and Noriaki Matsushima (2004) `Endogenous cost differentials between public and private enterprises: A mixed duopoly approach.' Economica 71(284), 671-688.

Matsumura, Toshihiro, and Noriaki Matsushima (2012) `Competitiveness and stability of collusive behavior.' Bulletin of Economic Research 64(s1), s22-s31.

Matsumura, Toshihiro, Noriaki Matsushima, and Susumu Cato. (2013) `Competitiveness and R&D competition revisited.' Economic Modelling 31(1), 541-547.

Matsumura, Toshihiro, and Makoto Okamura. (2015) `Competition and privatization policies revisited: The payoff interdependence approach.' Journal of Economics 116(2):137-50.

Matsumura, Toshihiro, and Daisuke Shimizu (2010) `Privatization waves.' Manchester School 78(6), 609-25.

Matsumura, Toshihiro, and Yoshihiro Tomaru (2015) `Mixed Duopoly, location choice and shadow cost of public funds.' Southern Economic Journal 82(2),416-29.

Megginson, William L and Jeffry M. Netter (2001) `From state to market: A survey of empirical studies on privatization.' Journal of Economic Literature 39(2), 321-389.

Pal, Debashis, and Mark D. White (1998) `Mixed oligopoly, privatization, and strategic trade policy.' Southern Economic Journal 65(2), 264-81.

Viscusi, W. Kip, Joseph E. Harrington, Jr., and John. M. Vernon (2005) Economics of Regulation and Antitrust, 4th Edition MIT Press, Cambridge, Massachusetts, London, England.