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Journal of Regulatory Economics

, Volume 47, Issue 1, pp 58–77 | Cite as

Consumer benefits of reforming a state-dominated industry

  • Heechul Min
Original Article

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.

Keywords

Privatization Deregulation Consumer welfare 

JEL Classification Codes

L33 D60 

Notes

Acknowledgments

This research was supported by Hankuk University of Foreign Studies Research Fund. An earlier version of this paper was presented at the 2013 Summer Conference of the Korea Academic Society of Industrial Organization under the title “Quantifying consumer benets in a privatized industry.” I thank the editor and two anonymous referees for their valuable comments and suggestions. The usual disclaimer applies.

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of International Economics and LawHankuk University of Foreign StudiesSeoulKorea

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