Journal of Economics

, Volume 116, Issue 2, pp 137–150 | Cite as

Competition and privatization policies revisited: the payoff interdependence approach

  • Toshihiro Matsumura
  • Makoto OkamuraEmail author


We investigate the relationship between competition and privatization policies. Existing studies measure the strength of competition based on the number of firms, and show that the optimal degree of privatization is higher in more competitive markets. We introduce an interdependent payoff structure into a mixed oligopoly and revisit this problem. Here, we assume that firms consider their own and other firms’ profits. In the model, competition increases when firms are negatively affected by rivals’ profits. We find that under the assumption of quadratic production costs, which is popular in mixed oligopolies, the optimal degree of privatization is higher when there is less market competition. This finding contrasts with those of prior studies. However, this result may be reversed when we adopt alternative model formulation. Furthermore, in the constant marginal cost case, the optimal degree of privatization is always lower when there is less market competition, which is opposite to the result in the quadratic cost case. Our results suggest that the relationship between an optimal privatization policy and the strength of competition crucially depends on the market structure, including the cost conditions.


Partial privatization Relative profit Mixed oligopoly Competition policy 

JEL Classification

H42 H44 L13 L32 


  1. Armstrong M, Huck S (2010) Behavioral economics as applied to firms: a primer. CESIFO working paper 2937Google Scholar
  2. Bárcena-Ruiz JC (2012) Privatization when the public firm is as efficient as private firms. Econ Model 29(4):1019–1023CrossRefGoogle Scholar
  3. Bárcena-Ruiz JC, Garzón MB (2003) Mixed duopoly, merger and multiproduct firms. J Econ 80(1):27–42CrossRefGoogle Scholar
  4. Bárcena-Ruiz JC, Garzón MB (2010) Endogenous timing in a mixed oligopoly with semipublic firms. Portuguese Econ J 9(2):97–113CrossRefGoogle Scholar
  5. Bose A, Gupta B (2013) Mixed markets in bilateral monopoly. J Econ 110(2):141–164CrossRefGoogle Scholar
  6. Cato S, Matsumura T (2012) Long-run effects of foreign penetration on privatization policies. J Inst Theor Econ 168(3):444–454CrossRefGoogle Scholar
  7. Cato S, Matsumura T (2013) Long-run effects of tax policies in a mixed market. Finanz Archiv 69(2):215–240CrossRefGoogle Scholar
  8. Cato S, Matsumura T (2015) Optimal privatization and trade policies with endogenous market structure. Econ Rec. doi: 10.1111/1475-4932.12189
  9. De Fraja G, Delbono F (1989) Alternative strategies of a public enterprise in oligopoly. Oxford Econ Pap 41(2):302–311Google Scholar
  10. Fjell K, Pal D (1996) A mixed oligopoly in the presence of foreign private firms. Can J Econ 29(3):737–743CrossRefGoogle Scholar
  11. Fujiwara K (2007) Partial privatization in a differentiated mixed oligopoly. J Econ 92(1):51–65CrossRefGoogle Scholar
  12. Fumas VS (1992) Relative performance evaluation of management : the effects on industrial competition and risk sharing. Int J Ind Organ 10(3):473–489CrossRefGoogle Scholar
  13. Gibbons R, Murphy KJ (1990) Relative performance evaluation for chief executive officers. Ind Labor Relat Rev 43(3):30–51CrossRefGoogle Scholar
  14. Gil-Moltó MJ, Poyago-Theotoky J, Zikos V (2011) R&D subsidies, spillovers and privatization in mixed markets. South Econ J 78(1):233–255CrossRefGoogle Scholar
  15. Han L, Ogawa H (2008) Economic integration and strategic privatization in an international mixed oligopoly. Finanz Archiv 64(3):352–363CrossRefGoogle Scholar
  16. Haraguchi J, Matsumura T (2014) Price versus quantity in a mixed duopoly with foreign penetration. Res Econ 68(4):338–353CrossRefGoogle Scholar
  17. Ishibashi I, Matsumura T (2006) R&D competition between public and private sectors. Eur Econ Rev 50(6):1347–1366CrossRefGoogle Scholar
  18. Ishibashi K, Kaneko T (2008) Partial privatization in mixed duopoly with price and quality competition. J Econ 95(3):213–232CrossRefGoogle Scholar
  19. Ishida J, Matsumura T, Matsushima N (2011) Market competition, R&D and firm profits in asymmetric oligopoly. J Ind Econ 59(3):484–505CrossRefGoogle Scholar
  20. Kato K (2006) Can allowing to trade permits enhance welfare in mixed oligopoly? J Econ 88(3):263–283CrossRefGoogle Scholar
  21. Kato K (2013) Optimal degree of privatization and the environmental problem. J Econ 110(2):165–180CrossRefGoogle Scholar
  22. Kockesen L, Ok EA, Sethi R (2000) The strategic advantage of negatively interdependent preferences. J Econ Theory 92(2):274–299CrossRefGoogle Scholar
  23. Lin MH, Matsumura T (2012) Presence of foreign investors in privatized firms and privatization policy. J Econ 107(1):71–80CrossRefGoogle Scholar
  24. Matsumura T (1998) Partial privatization in mixed duopoly. J Publ Econ 70(3):473–483CrossRefGoogle Scholar
  25. Matsumura T (2003) Endogenous role in mixed markets: a two-production period model. South Econ J 70(2):403–413CrossRefGoogle Scholar
  26. Matsumura T, Kanda O (2005) Mixed oligopoly at free entry markets. J Econ 84(1):27–48CrossRefGoogle Scholar
  27. Matsumura T, Matsushima N (2004) Endogenous cost differentials between public and private enterprises: a mixed duopoly approach. Economica 71:671–88CrossRefGoogle Scholar
  28. Matsumura T, Matsushima N (2012) Competitiveness and stability of collusive behavior. Bull Econ Res 64(s1):s22–s31CrossRefGoogle Scholar
  29. Matsumura T, Matsushima N, Cato S (2013) Competitiveness and R&D competition revisited. Econ Model 31(1):541–547CrossRefGoogle Scholar
  30. Matsumura T, Ogawa A (2010) On the robustness of private leadership in mixed duopoly. Aust Econ Pap 49(2):149–160CrossRefGoogle Scholar
  31. Matsumura T, Shimizu D (2010) Privatization waves. Manchester School 78(6):609–625CrossRefGoogle Scholar
  32. Matsumura T, Sunada T (2013) Advertising competition in a mixed oligopoly. Econ Lett 119(2):183–185CrossRefGoogle Scholar
  33. Matsumura T, Tomaru Y (2012) Market structure and privatization policy under international competition. Jap Econ Rev 63(2):244–258CrossRefGoogle Scholar
  34. Matsumura T, Tomaru Y (2013) Mixed duopoly, privatization, and subsidization with excess burden of taxation. Can J Econ 46(2):526–554CrossRefGoogle Scholar
  35. Mujumdar S, Pal D (1998) Effects of indirect taxation in a mixed oligopoly. Econ Lett 58(2):199–204CrossRefGoogle Scholar
  36. Mukherjee A, Zhao L (2009) Profit raising entry. J Ind Econ 57(4):870CrossRefGoogle Scholar
  37. Merrill W, Schneider N (1966) Government firms in oligopoly industries: a short-run analysis. Q J Econ 80(3):400–412CrossRefGoogle Scholar
  38. Naya JM (2015) Endogenous timing in a mixed duopoly model. J Econ. doi: 10.1007/s00712-014-0416-2
  39. Nishimori A, Ogawa H (2002) Public monopoly, mixed oligopoly and productive efficiency. Aust Econ Pap 41(2):185–190CrossRefGoogle Scholar
  40. Pal D (1998) Endogenous timing in a mixed oligopoly. Econ Lett 61(2):181–185CrossRefGoogle Scholar
  41. Tomaru Y, Kiyono K (2010) Endogenous timing in mixed duopoly with increasing marginal costs. J Inst Theor Econ 166(4):591–613CrossRefGoogle Scholar
  42. Vega-Redondo F (1997) The evolution of Walrasian behavior. Econometrica 65(2):375–384CrossRefGoogle Scholar
  43. Wang LFS, Chen TL (2010) Do cost efficiency gap and foreign competitors matter concerning optimal privatization policy at the free entry market? J Econ 100(1):33–49CrossRefGoogle Scholar
  44. Wang LFS, Lee JY (2013) Foreign penetration and undesirable competition. Econ Model 30(1):729–732CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Wien 2015

Authors and Affiliations

  1. 1.Institute of Social ScienceThe University of TokyoTokyoJapan
  2. 2.Economics DepartmentHiroshima UniversityHigashihiroshimaJapan

Personalised recommendations