Advertisement

Journal of Economics

, Volume 123, Issue 1, pp 71–88 | Cite as

An analysis of entry-then-privatization model: welfare and policy implications

  • Sang-Ho Lee
  • Toshihiro Matsumura
  • Susumu SatoEmail author
Article

Abstract

This study formulates a new model of mixed oligopolies in free entry markets. A state-owned public enterprise is established before the game, private enterprises enter the market, and then the government chooses the degree of privatization of the public enterprise (termed the entry-then-privatization model herein). We find that under general demand and cost functions, the timing of privatization does not affect consumer surplus or the output of each private firm, while it does affect the equilibrium degree of privatization, number of entering firms, and output of the public firm. The equilibrium degree of privatization is too high (low) for both domestic and world welfare if private firms are domestic (foreign).

Keywords

Timing of privatization Commitment State-owned public enterprises Foreign competition 

JEL classification

H42 L13 

Notes

Acknowledgements

We are indebted to two anonymous referees for their valuable and constructive suggestions. This work was supported by National Research Foundation of Korea Grant (NRF-2014S1A2A2028188), JSPS KAKENHI (15K03347), and the Zengin Foundation. Needless to say, we are responsible for any remaining errors.

References

  1. Anderson SP, de Palma A, Thisse JF (1997) Privatization and efficiency in a differentiated industry. Eur Econ Rev 41(9):1635–1654CrossRefGoogle Scholar
  2. Bárcena-Ruiz JC, Garzón MB (2005a) Economic integration and privatization under diseconomies of scale. Eur J Polit Economy 21(1):247–267CrossRefGoogle Scholar
  3. Bárcena-Ruiz JC, Garzón MB (2005b) International trade and strategic privatization. Rev Dev Econ 9(4):502–513CrossRefGoogle Scholar
  4. Cato S, Matsumura T (2012) Long-run effects of foreign penetration on privatization policies. J Inst Theor Econ 168(3):444–454CrossRefGoogle Scholar
  5. Cato S, Matsumura T (2013a) Long-run effects of tax policies in a mixed market. FinanzArchiv 69(2):215–240CrossRefGoogle Scholar
  6. Cato S, Matsumura T (2013b) Merger and entry-license tax. Econ Lett 119(1):11–13CrossRefGoogle Scholar
  7. Cato S, Matsumura T (2015) Optimal privatization and trade policies with endogenous market structure. Econ Rec 91(294):309–323CrossRefGoogle Scholar
  8. Chen TL (2017) Privatization and efficiency: a mixed oligopoly approach. J Econ 120(3):251–268CrossRefGoogle Scholar
  9. Colombo S (2016) Mixed oligopoly and collusion. J Econ 118(2):167–184CrossRefGoogle Scholar
  10. Corneo G, Jeanne O (1994) Oligopole mixte dans un marche commun. Annal Econ Stat 33:73–90Google Scholar
  11. De Fraja G, Delbono F (1989) Alternative strategies of a public enterprise in oligopoly. Oxford Econ Pap 41:302–311CrossRefGoogle Scholar
  12. Fjell K, Pal D (1996) A mixed oligopoly in the presence of foreign private firms. Can J Econ 29(3):737–743CrossRefGoogle Scholar
  13. Fujiwara K (2007) Partial privatization in a differentiated mixed oligopoly. J Econ 92(1):51–65CrossRefGoogle Scholar
  14. Fujiwara K (2015) Mixed oligopoly and privatization in general equilibrium. Kwansei Gakuin University Discussion Paper No. 137Google Scholar
  15. Ghosh A, Morita H (2007a) Free entry and social efficiency under vertical oligopoly. RAND J Econ 38(2):541–554CrossRefGoogle Scholar
  16. Ghosh A, Morita H (2007b) Social desirability of free entry: a bilateral oligopoly analysis. Int J Ind Organ 25(5):925–934CrossRefGoogle Scholar
  17. Hattori K, Yoshikawa T (2016) Free entry and social inefficiency under co-opetition. J Econ 118(2):97–119CrossRefGoogle Scholar
  18. Haraguchi J, Matsumura T (2016) Cournot–Bertrand comparison in a mixed oligopoly. J Econ 117(2):117–136CrossRefGoogle Scholar
  19. Ino H, Matsumura T (2010) What role should public enterprises play in free-entry markets? J Econ 101(3):213–230CrossRefGoogle Scholar
  20. Ino H, Matsumura T (2012) How many firms should be leaders? Beneficial concentration revisited. Int Econ Rev 53(4):1323–1340CrossRefGoogle Scholar
  21. Ishibashi I, Matsumura T (2006) R&D competition between public and private sectors. Eur Econ Rev 50(6):1347–1366CrossRefGoogle Scholar
  22. Ishida J, Matsushima N (2009) Should civil servants be restricted in wage bargaining? A mixed-duopoly approach. J Public Econ 93(3–4):634–646CrossRefGoogle Scholar
  23. Lahiri S, Ono Y (1988) Helping minor firms reduces welfare. Econ J 98:1199–1202CrossRefGoogle Scholar
  24. Lahiri S, Ono Y (1998) Foreign direct investment, local content requirement, and profit taxation. Econ J 108:444–457CrossRefGoogle Scholar
  25. Lin MH, Matsumura T (2012) Presence of foreign investors in privatized firms and privatization policy. J Econ 107(1):71–80CrossRefGoogle Scholar
  26. Mankiw NG, Whinston MD (1986) Free entry and social inefficiency. RAND J Econ 17(1):48–58CrossRefGoogle Scholar
  27. Martin S, Parker D (1997) The impact of privatisation: ownership and corporate performance in the UK. Routledge, LondonCrossRefGoogle Scholar
  28. Matsumura T (1998) Partial privatization in mixed duopoly. J Public Econ 70(3):473–483CrossRefGoogle Scholar
  29. Matsumura T (2003a) Endogenous role in mixed markets: a two-production period model. South Econ J 70(2):403–413CrossRefGoogle Scholar
  30. Matsumura T (2003b) Stackelberg mixed duopoly with a foreign competitor. Bull Econ Res 55(3):275–287CrossRefGoogle Scholar
  31. Matsumura T (2012) Welfare consequences of an asymmetric regulation in mixed Bertrand duopoly. Econ Lett 115(1):94–96CrossRefGoogle Scholar
  32. Matsumura T, Kanda O (2005) Mixed oligopoly at free entry markets. J Econ 84(1):27–48CrossRefGoogle Scholar
  33. Matsumura T, Matsushima N (2004) Endogenous cost differentials between public and private enterprises: a mixed duopoly approach. Economica 71(284):671–688CrossRefGoogle Scholar
  34. Matsumura T, Matsushima N, Ishibashi I (2009) Privatization and entries of foreign enterprises in a differentiated industry. J Econ 98(3):203–219CrossRefGoogle Scholar
  35. Matsumura T, Ogawa A (2012) Price versus quantity in a mixed duopoly. Econ Lett 116(2):174–177CrossRefGoogle Scholar
  36. Matsumura T, Ogawa A (2017) Inefficient but robust public leadership (forthcoming). J Ind Compet Trade. doi: 10.1007/s10842-017-0248-1 Google Scholar
  37. Matsumura T, Okumura Y (2013) Privatization neutrality theorem revisited. Econ Lett 118(2):324–326CrossRefGoogle Scholar
  38. Matsumura T, Okumura Y (2017) Privatization neutrality theorem in free entry markets. BE J Theor Econ 17(2). doi: 10.1515/bejte-2015-0130
  39. Matsumura T, Shimizu D (2010) Privatization waves. Manch Sch 78(6):609–625CrossRefGoogle Scholar
  40. Matsumura T, Tomaru Y (2012) Market structure and privatization policy under international competition. Jpn Econ Rev 63(2):244–258CrossRefGoogle Scholar
  41. Matsumura T, Yamagishi A (2017) Long-run welfare effect of energy conservation regulation. Econ Lett 154:64–68CrossRefGoogle Scholar
  42. Matsushima N, Matsumura T (2006) Mixed oligopoly, foreign firms, and location choice. Reg Sci Urban Econ 36(6):753–772CrossRefGoogle Scholar
  43. Megginson W, Netter J (2001) From state to market: a survey of empirical studies on privatization. J Econ Lit 39(2):321–389CrossRefGoogle Scholar
  44. Pal D (1998) Endogenous timing in a mixed oligopoly. Econ Lett 61(2):181–185CrossRefGoogle Scholar
  45. Pal D, White MD (1998) Mixed oligopoly, privatization, and strategic trade policy. South Econ J 65(2):264–281CrossRefGoogle Scholar
  46. Singh N, Vives X (1984) Price and quantity competition in a differentiated duopoly. RAND J Econ 15(4):546–554CrossRefGoogle Scholar
  47. Stiglitz JE (1988) Economics of the public sector, 2nd edn. Norton, New YorkGoogle Scholar
  48. Wang LFS, Lee JY (2013) Foreign penetration and undesirable competition. Econ Model 30(1):729–732CrossRefGoogle Scholar
  49. White MD (1996) Mixed oligopoly, privatization and subsidization. Econ Lett 53(2):189–195CrossRefGoogle Scholar
  50. Xu L, Lee SH, Matsumura T (2017) Ex-ante versus ex-post privatization policies with foreign penetration in free-entry mixed markets. Int Rev Econ Financ 50:1–7CrossRefGoogle Scholar

Copyright information

© Springer-Verlag GmbH Austria 2017

Authors and Affiliations

  1. 1.College of Business AdministrationChonnam National UniversityGwangjuSouth Korea
  2. 2.Institute of Social ScienceThe University of TokyoTokyoJapan
  3. 3.Graduate School of EconomicsThe University of TokyoTokyoJapan

Personalised recommendations