Privatization of state holding corporations

Juan Bárcena-Ruiz and María Begoña Garzón ()
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María Begoña Garzón: Universidad del País Vasco UPV/EHU

Journal of Economics, 2017, vol. 120, issue 2, No 4, 188 pages

Abstract: Abstract Many countries have privatized part of their state holding corporations in recent years. However, the literature on this issue has analyzed mainly the privatization of uniproduct public firms. We consider a state holding corporation with two plants that may produce complement or substitute goods. Assuming that private firms are more efficient than the state holding corporation we find the following: If the marginal cost of the state corporation is low, it is not privatized either if goods are substitutes or if they are complements. However, if the marginal cost of the state corporation is high the two plants of the state holding corporation are sold to a single private investor if goods are complements, and to different investors if goods are substitutes. If goods are close substitutes and the marginal cost of the state corporation takes an intermediate value only one plant is privatized. We extend the model to consider that firms are equally efficient, that they face quadratic cost functions and that there are n uniplant private firms producing each good. We find two differences with the previous result: The government never privatizes just one plant of the state corporation, and when goods are complements the two plants of the state corporation are sold to different investors if n is high.

Keywords: Privatization; State holding corporation; Multiproduct firms; Oligopoly (search for similar items in EconPapers)
JEL-codes: L13 L22 L33 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:120:y:2017:i:2:d:10.1007_s00712-016-0498-0

DOI: 10.1007/s00712-016-0498-0

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