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A New Approach to Free Entry Markets in Mixed Oligopolies: Welfare Implications
1 : Sang-Ho Lee
(Chonnam National University)
77 Yongbong-Ro, Bukgu, Gwangju 500-757 -
South Korea
2 : Toshihiro Matsumura
(The University of Tokyo)
3 : Susumu Sato
(The University of Tokyo)
This study formulates a new model of mixed oligopolies in free entry markets. A state-owned public enterprise is established before the game, private enterprises enter the market, and then the government chooses the degree of privatization of the public enterprise (Entry-then-Privatization Model). We find that under general demand and cost functions, the timing of privatization does not affect consumer surplus or the output of each private firm, while it does affect the equilibrium degree of privatization, number of entering firms, and output of the public firm. The equilibrium degree of privatization is too high (low) for both domestic and world welfare if private firms are domestic (foreign).
