Consumer benefits of reforming a state-dominated industry

Heechul Min ()

Journal of Regulatory Economics, 2015, vol. 47, issue 1, 58-77

Abstract: The presence of state-owned enterprises (SOEs) in an industry where private firms operate poses a concern over fair competition. This paper estimates the improvement in consumer welfare from eliminating the SOE’s privileges awarded by state-ownership and regulation. The empirical framework is based on a random coefficient discrete choice model and yields an economically interpretable welfare measure in a differentiated product market. Utilizing data on the Korean cigarette manufacturing industry that recently underwent privatization and deregulation, the estimated model shows a significant increase in consumer surplus. This improvement is ascribed to firms’ better alignment of product lines with consumer preferences, to expanded consumer choice, and to a limited rise in prices. The results, however, raise a distributional concern as the gains mostly fall on consumers of mid- and high-price brands. Copyright Springer Science+Business Media New York 2015

Keywords: Privatization; Deregulation; Consumer welfare; L33; D60 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:kap:regeco:v:47:y:2015:i:1:p:58-77

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DOI: 10.1007/s11149-014-9262-y

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