Strategic Privatization and Regulation Policy in Mixed Markets

In this paper we consider mixed oligopoly markets for di®erentiated goods where private and publicrms compete either in prices or quan- tities. We then study the welfare e®ect of privatization interpreted as partial strategic delegation of the publicrm to a private manager with prot concern. Itis shown that partial privatization improves welfare with quantity competition when goods are substitutes, and with price compe- tition when goods are complements. However full privatization (complete delegation to private manager) can never be optimal. It is also shown that the publicrm can make more prot than the privaterm in equilibrium, and that this possibility is more likely under quantity competition. Turn- ing to market regulation policy, wend: (i) that public and privaterms should be taxed the same; and (ii) that price regulation is better than quantity regulation.