Privatization and Efficiency in a Differentiated Industry

  • Cahiers de recherche; 1995.01
Publication date1995

We consider a market in which a public firm competes against privates ones, and ask what happens when the public firm is privatized. In the short run, privatization is harmful because all prices rise : the disciplinary role of the public firm is lost. In the long run, privatization leads to further entry ; the net effect is beneficial if consumer preference for variety is not too weak. A sufficient statistic for welfare to be higher in the long run is that the public firm makes a loss. Profitable firms should not be privatized, in contrast with frequent practice. logistique

Citation (ISO format)
ANDERSON, Simon P., DE PALMA, André, THISSE, Jacques-François. Privatization and Efficiency in a Differentiated Industry. 1995
  • PID : unige:5993

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