Optimal Privatization and Entry in a Differentiated Mixed Oligopoly

Abstract

We address two questions. First, does the excess entry result of pure oligopoly hold when firms face a substitute good produced by a public firm? Second, what would be the optimal ownership of the public firm? We find that excess entry still occurs, but the excessiveness is largely mitigated due to the presence of the public firm. On the ownership of the public firm, we find that partial privatization need not always be optimal. Depending on the substitutability of the two products, the social optimum may involve one or more private firms, and full or partial public ownership.

Keywords: partial privatization, mixed oligopoly, entry