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Optimal privatization policy with Bertrand competition

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  • Wang, Chia-Chi
  • Chiou, Jiunn-Rong

Abstract

This article endogenizes the degree of privatization under a mixed oligopoly market in which a less efficient public firm engages in price competition with a private firm. The results are substantially different from those obtained in quantity competition situations. First, the public firm's price may be lower or higher than the private firm's price. Second, privatization should not necessarily increase both firms' prices. Finally, the relationship between the optimal degree of privatization and the efficiency of the public firm is nonmonotonic. Hence, the optimal privatization policy in price competition situation is not always partial privatization; it might also be full privatization or full nationalization.

Suggested Citation

  • Wang, Chia-Chi & Chiou, Jiunn-Rong, 2018. "Optimal privatization policy with Bertrand competition," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 538-546.
    • Handle: RePEc:eee:reveco:v:56:y:2018:i:c:p:538-546
    DOI: 10.1016/j.iref.2017.12.008
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    Cited by:

    1. José Méndez‐Naya & José A. Novo‐Peteiro, 2023. "Partial privatization with endogenous choice of strategic variable," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 1215-1227, March.
    2. Sato, Susumu & Matsumura, Toshihiro, 2019. "Shadow cost of public funds and privatization policies," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    3. Osvaldo Candido & Wilfredo L. Maldonado & Cintia L. M. Araujo, 2021. "Private or Public Enterprises? Cost Inefficiency Limits - An Application to Water Supply Companies in Brazil," Working Papers, Department of Economics 2021_09, University of São Paulo (FEA-USP).
    4. Akio Kawasaki, 2023. "Pricing Strategies and Partial Privatization Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(3), pages 293-319, May.
    5. Junlong Chen & Chaoqun Sun & Ruiyu He & Yibing Zhang & Jiali Liu, 2023. "Optimal nationalization policy in a heterogeneous mixed oligopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 807-827, March.
    6. Paul, Arindam & De, Parikshit, 2022. "Reversal of Bertrand-Cournot Ranking for Optimal Privatization Level," MPRA Paper 116272, University Library of Munich, Germany, revised 10 Feb 2023.

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    More about this item

    Keywords

    Price competition; Privatization; Mixed oligopoly;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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