Privatization neutrality with quality and subsidies

Horn-In Kuo (), Fu-Chuan Lai and K. L. Glen Ueng
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Horn-In Kuo: Ming Chuan University
Fu-Chuan Lai: National Chengchi University
K. L. Glen Ueng: National Chengchi University

The Japanese Economic Review, 2020, vol. 71, issue 3, No 3, 405-419

Abstract: Abstract This study introduces a subsidy policy on product quality in a quality-then-price game to remedy the quality distortion under a mixed oligopoly (one public firm and one private firm) framework. We show that the multi-stage setting for firms is crucial for the validity of privatization neutrality. Since firms have different objectives, their asymmetric strategic consideration on price will spill over to the quality competition if there exists price differentiation in equilibrium under partial privatization. This spillover effect results in lower social welfare levels than the first-best outcome, and the neutrality of privatization in White (Economics Letters 53:189–195) no longer holds in our multi-stage model. Specifically, the optimal privatization policy is either fully public or completely private, where the social welfare attains the first-best outcome.

Keywords: Mixed oligopoly; Privatization neutrality; Quality subsidy; Multi-stage; Quality competition (search for similar items in EconPapers)
JEL-codes: H21 L11 L22 L23 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s42973-019-00022-x

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