Abstract:

The first essay collects and organizes the many past theoretical results on the predicted welfare effects of privatization in mixed oligopolies. In organizing these results it becomes apparent that several cases remain missing in the resulting table. I develop these cases. I conclude that a public Stackelberg leader should never privatize. A public Cournot firm should be privatized in a closed economy with no subsidy when a domestic market is less competitive (small number of firms), and in an open economy with no subsidy when a domestic market is very competitive (large number of firms), and finally, in an open economy with subsidy. In addition, I examine whether it is welfare superior for a public firm to be individually subsidized (instead of subsidizing all firms) or privatized and find out that in the Cournot model, for every given slope of marginal cost, a public firm should be privatized if the market is competitive, and it should be individually subsidized if the market is less competitive. Moreover, in the Stackelberg model, individually subsidizing a Stackelberg leader is always at least as good as privatizing it.

The second essay investigates the optimal partial privatization of a Stackelberg leader in a mixed oligopoly. This essay builds from Matsumura's duopoly Cournot model (1998) by allowing for both multiple private firms and by comparing Cournot and Stackelberg models. In Cournot, partial ownership is optimal in both a duopoly and in m -firm oligopoly. In Stackelberg, partial privatization can be optimal but only when the government weighs consumer surplus more than profit in the welfare function. Indeed, for large weights on consumer surplus the optimal extent of privatization in Stackelberg actually exceeds that in Cournot. More importantly, the extent of partial privatization increases when the mixed ownership firm's cost rises.