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Optimal Privatization and Subsidization Policies in a Mixed Duopoly: Relevance of a Cost Gap

Author

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  • Yoshihiro Tomaru
  • Leonard F. S. Wang

Abstract

This study considers subsidization and privatization policies in a mixed duopoly with one public firm and one private firm. The special feature of this study is that privatization can reduce the cost gap between the firms. We show that the optimal subsidy yields the efficient production allocation if privatization is not implemented. However, once the public firm is privatized, it overproduces under the optimal subsidy. Moreover, partial privatization is optimal unless privatization significantly reduces the cost gap.

Suggested Citation

  • Yoshihiro Tomaru & Leonard F. S. Wang, 2018. "Optimal Privatization and Subsidization Policies in a Mixed Duopoly: Relevance of a Cost Gap," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 174(4), pages 689-706, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201812)174:4_689:opaspi_2.0.tx_2-h
    DOI: 10.1628/jite-2018-0005
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    Citations

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    Cited by:

    1. Leonard F. S. Wang & Arijit Mukherjee & Chenhang Zeng, 2020. "Does technology licensing matter for privatization?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1462-1480, September.
    2. Zheng Wang & John S. Heywood & Guangliang Ye, 2020. "Optimal mixed ownership: A contract view," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 28(1), pages 45-68, January.
    3. Yi Liu & Leonard F.S. Wang & Chenhang Zeng, 2023. "Upstream privatization and downstream licensing," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(1), pages 148-165, March.
    4. Yi Liu & Toshihiro Matsumura & Chenhang Zeng, 2021. "The relationship between privatization and corporate taxation policies," Journal of Economics, Springer, vol. 133(1), pages 85-101, June.
    5. Pu‐yan Nie & Yong‐cong Yang, 2020. "Cost‐reduction innovation under mixed economy," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1195-1201, October.
    6. Ding Chen & Leonard F. S. Wang & Ji Sun, 2023. "Does CSR influence privatization wave?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 1088-1097, March.
    7. Ya‐Po Yang & Qidi Zhang & Leonard F. S. Wang, 2022. "Tariff simplification, privatization, and welfare superiority," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 683-707, May.
    8. Leonard F. S. Wang & Yoshihiro Tomaru & Chan Zhou, 2024. "Free entry in mixed oligopoly leads to insufficient privatization?," International Journal of Economic Theory, The International Society for Economic Theory, vol. 20(1), pages 56-69, March.
    9. 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.
    10. Xu, Lili & Zhao, Qinghong & Chen, Yuyan & Lee, Sang-Ho, 2023. "Post privatization of high-speed rail with corporate social responsibility (CSR) in an international transportation market: Mandatory CSR versus voluntary CSR," Economics of Transportation, Elsevier, vol. 35(C).
    11. Chen, Ding & Wang, Leonard F.S. & Lee, Jen-yao, 2019. "Foreign ownership, privatization and subsidization with shadow cost of public funds," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    12. Hongkun Ma & X. Henry Wang & Chenhang Zeng, 2021. "Location choice and costly product differentiation in a mixed duopoly," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 66(1), pages 137-159, February.

    More about this item

    Keywords

    partial privatization; subsidization; cost gap; mixed duopoly;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • 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

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