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Capacity choice and optimal privatization in a mixed duopoly

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  • Jorge Fernández-Ruiz

    (El Colegio de México)

Abstract

We examine a mixed duopoly where the degree of privatization of a public firm is set before firms choose their capacity scales and then choose their outputs. We find that the public firm chooses over-capacity for high degrees of privatization and under-capacity for low degrees of privatization, while the private firm always chooses over-capacity. We then find that the optimal degree of privatization of the public firm depends non-monotonically on its relative inefficiency: it is low for small or large levels of inefficiency and it is high for intermediate levels of inefficiency. We finally show that, given the optimal degree of privatization, the public firm may choose over-capacity or under-capacity, and that this choice also depends non-monotonically on its relative inefficiency.

Suggested Citation

  • Jorge Fernández-Ruiz, 2019. "Capacity choice and optimal privatization in a mixed duopoly," Economics Bulletin, AccessEcon, vol. 39(4), pages 2751-2765.
    • Handle: RePEc:ebl:ecbull:eb-19-00770
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Mixed duopoly; capacity choice; optimal privatization; partial privatization;
    All these keywords.

    JEL classification:

    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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