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Discussion Paper Details

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Title: Privatization and Efficiency in a Differentiated Industry

Author(s): André de Palma and Jacques-François Thisse

Publication Date: March 1995

Keyword(s): Mixed Oligopoly, Privatization and Product Differentiation

Programme Area(s): Industrial Organization

Abstract: We consider a market in which a public firm competes against private firms, and ask what happens when the public firm is privatized. In the short run, privatization is harmful because all prices rise; the disciplinary role of the public firm is lost. In the long run, privatization leads to further entry; the net effect is beneficial if consumer preference for variety is not too weak. A sufficient statistic for welfare to be higher in the long run, is that the public firm makes a loss. Profitable firms should not be privatized, in contrast with frequent practice.

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Bibliographic Reference

de Palma, A and Thisse, J. 1995. 'Privatization and Efficiency in a Differentiated Industry'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1136