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A note on the privatization neutrality result with colluding private firms

Marc Escrihuela-Villar and Carlos Gutiérrez-Hita ()
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Carlos Gutiérrez-Hita: Universitas Miguel Hernández and Universidad Nebrija

Economics Bulletin, 2018, vol. 38, issue 4, 2016-2025

Abstract: In a mixed quantity-setting oligopoly, we investigate the welfare effects of privatization in the presence of an optimal output subsidy. We find that the privatization neutrality result is not satisfied whenever there is at least some cooperation between the private firms. Our result suggests that the degree of cooperation between private firms reduces the government incentives to privatize the public firm. In addition, if a consumer surplus bias of the public firm is considered, the privatization neutrality result does not hold either, and the incentives to privatize the public firm are further reduced.

Keywords: Imperfect competition; Mixed oligopoly; Partial privatization; Subsidies. (search for similar items in EconPapers)
JEL-codes: L1 L4 (search for similar items in EconPapers)
Date: 2018-10-30
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