Privatizing by merger: The case of an inefficient public leader

J. Alejandro Gelves and John Heywood

International Review of Economics & Finance, 2013, vol. 27, issue C, 69-79

Abstract: We compare a merger between an inefficient public leader and an efficient follower with unilateral privatization of the public leader (both eliminate the inefficiency of the leader). We identify the circumstances in which the merger increases both welfare and private profit and, for the first time, show that partial privatization by merger often dominates the unilateral privatization despite the loss of a competitor. Recognizing this helps define the extent of partial privatization by merger that should actually be observed and also suggests that more policy emphasis should be placed on privatization by merger.

Keywords: Privatization; Stackelberg leader; Merger paradox; Public firm (search for similar items in EconPapers)
JEL-codes: L13 L40 L41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:27:y:2013:i:c:p:69-79

DOI: 10.1016/j.iref.2012.09.001

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