Competitive Pressure from Neighboring Markets and Optimal Privatization Policy

Haraguchi, Junichi and Matsumura, Toshihiro and Yoshida, Shohei (2017): Competitive Pressure from Neighboring Markets and Optimal Privatization Policy.

Abstract

We formulate a mixed oligopoly model in which one state-owned public enterprise competes with n private firms in the same market and m private firms in the neighboring market. We investigate how n and m affect the optimal degree of privatization. We find a nonmonotone (monotone) relationship between the optimal degree of privatization and the number of private competitors in the neighboring (same) market. The optimal degree of privatization is increasing in the number of private firms in the same market, and the relationship between the optimal degree of privatization and the number of private competitors in the neighboring market is an inverted U-shape. An increase in m more likely increases the optimal degree of privatization when the degree of product differentiation is low. Our results suggest that more competitive pressure from competitors supplying differentiated products can reduce the optimal degree of privatization.

• Item Type: MPRA Paper
• Language: English
• Keywords: market competitiveness, partial privatization, number of private firms
• 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

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