Strategic Privatization and Regulation Policy in Mixed Markets

Abstract

In this paper we consider mixed oligopoly markets for di®erentiated goods where private and public¯rms compete either in prices or quantities. We then study the welfare e®ect of privatization interpreted as partial strategic delegation of the public¯rm to a private manager with pro¯t concern. It is shown that partial privatization improves welfare with quantity competition when goods are substitutes, and with price competition when goods are complements. However full privatization (complete delegation to private manager) can never be optimal. It is also shown that the public¯rm can make more pro¯t than the private¯rm in equilibrium, and that this possibility is more likely under quantity competition. Turning to market regulation policy, we¯nd: (i) that public and private¯rms should be taxed the same; and (ii) that price regulation is better than quantity regulation.

On the Neutrality of Profit Taxation in a Mixed Oligopoly

“…They observe that Cournot (Bertrand) competition with substitutes (δ > 0) was shown to be the dual of Bertrand (Cournot) competition with complements (δ < 0). This observation was subsequently extended to differentiated products mixed oligopolistic markets by Claude and Hindriks (2006). By the duality, it is trivial to show that the neutrality of profit taxation is robust to the competition modes.…”

“…We first investigate the neutrality of profit taxation under the optimal privatization policy in a mixed duopoly with heterogeneous products, where the two firms compete in Cournot fashion, the two goods can be substitutes or complements to each other, depending on their substitutability. Then, using the duality between quantity competition and price competition in a heterogeneous mixed oligopolistic market (see Claude & Hindriks, 2006), we further analyze the neutrality of the profit tax under Bertrand competition.…”

Competition or Monopoly? Comparing Privatization of Local Public Services in the Us and Spain

“…It is expected that managers of mixed firms under effective control of local government will give more weight to the objectives of local government and will give less weight to profit maximization. This is expected on the basis of theoretical literature on partial privatization and on the relationship between partial private ownership and managers’ choices (for example, Matsumura 1998; Matsumura and Kanda 2005; Claude and Hindriks 2005).…”

Privatization and Universal Service Obligations

“…In the traditional analysis of mixed oligopolies it is considered that public firms exclusively maximize social welfare while private firms maximize profits. Instead of adopting this framework, we follow the models of MATSUMURA [1998] and CLAUDE AND HINDRIKS [2006], where the managers of a partly privatized USP consider a weighted sum of social welfare and the USP's profit. 1 In this context, they show that partial privatization is optimal if the private firm is more efficient.…”