Privatization of a multi-product public firm

Akio Kawasaki and Shunichi Matsuzaki

Asia-Pacific Journal of Accounting & Economics, 2022, vol. 29, issue 1, 275-285

Abstract: This study considers a public firm that provides a profitable service and an unprofitable service. In our model, only the public firm supplies the unprofitable service, while both the public firm and multiple private firms supply the profitable service. The two services may be substitutes, complements, or independent in demand, and the public firm has inferior technology. We examine whether the public firm should privatize either the profitable service or the service that faces competition from private firms. We obtain the following results. When the two services are complementary, the critical cost of the public firm such that privatizing the profitable service is socially preferable increases with the degree of complementarity. When the two services are substitutes, the critical cost decreases (increases) with the degree of substitution for a low (high) degree of substitution. For a sufficiently high degree of substitution, the critical cost becomes small.

Date: 2022
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DOI: 10.1080/16081625.2020.1726776

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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