Strategic Privatization and Regulation Policy in Mixed Markets

CORE Discussion Paper No. 2005/15

20 Pages Posted: 8 Feb 2006

See all articles by Denis Claude

Denis Claude

HEC Montreal

Jean Hindriks

University of London - School of Economics and Finance

Date Written: March 2005

Abstract

In this paper we consider mixed oligopoly markets for differentiated goods where private and public firms compete either in prices or quantities. We then study the welfare effect of privatization interpreted as partial strategic delegation of the public firm to a private manager with profit 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 firm can make more profit than the private firm in equilibrium, and that this possibility is more likely under quantity competition. Turning to market regulation policy, we find: (i) that public and private firms should be taxed the same; and (ii) that price regulation is better than quantity regulation.

Suggested Citation

Claude, Denis and Hindriks, Jean, Strategic Privatization and Regulation Policy in Mixed Markets (March 2005). CORE Discussion Paper No. 2005/15, Available at SSRN: https://ssrn.com/abstract=880401 or http://dx.doi.org/10.2139/ssrn.880401

Denis Claude (Contact Author)

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Jean Hindriks

University of London - School of Economics and Finance ( email )

Mile End Road
London, E1 4NS
United Kingdom
+44 20 7882 7807 (Phone)
+44 20 8983 3580 (Fax)

HOME PAGE: http://www.dc.eclipse.co.uk/hindriks.html

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