Journal of Economics

, Volume 124, Issue 1, pp 19–55 | Cite as

Collusion in mixed oligopolies and the coordinated effects of privatization

Article

Abstract

We study the sustainability of collusion in mixed oligopolies where private and public firms only differ in their objective: private firms maximize profits, while public firms maximize total surplus. If marginal costs are increasing, public firms do not supply the entire market, leaving room for private firms to produce and possibly cooperate by restricting output. The presence of public firms makes collusion among private firms harder to sustain, and maybe even unprofitable. As the number of private firms increases, collusion may become easier or harder to sustain. Privatization makes collusion easier to sustain, and is socially detrimental whenever firms are able to collude after privatization (which is always the case if they are sufficiently patient). Coordinated effects thus reverse the traditional result according to which privatization is socially desirable if there are many firms in the industry.

Keywords

Collusion Mixed oligopoly Privatization Coordinated effects 

JEL Classification

D43 H44 L13 L41 

Notes

Acknowledgements

We are very grateful to Yassine Lefouili and two anonymous referees for extremely useful comments and suggestions. Part of this work was developed while the two authors were at the Toulouse School of Economics. Joana Pinho acknowledges financial support from Fundação para a Ciência e a Tecnologia (FCT) through post-doctoral scholarship BPD/79535/2011. João Correia-da-Silva acknowledges financial support from the European Commission through Marie Curie fellowship H2020-MSCA-IF-2014-657283. This research was also financed by FEDER (COMPETE) and by Portuguese public funds (FCT), through Projects PTDC/IIM-ECO/5294/2012 and PEst-OE/EGE/UI4105/2014

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Copyright information

© Springer-Verlag GmbH Austria 2017

Authors and Affiliations

  1. 1.CEF.UP and Faculdade de EconomiaUniversidade do PortoPortoPortugal

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