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Privatization Neutrality Theorem in Free Entry Markets

  • Toshihiro Matsumura and Yasunori Okumura EMAIL logo

Abstract

It is known that if the number of entering firms is endogenous (free entry markets), privatization is not necessarily welfare neutral in mixed oligopolies under a uniform production subsidy policy. We revisit this problem by considering another policy tool, the output floor regulation. We investigate three free entry models with different time structures, a Cournot and two Stackelberg models. We find that neutrality is restored in free entry markets under the optimal output floor regulation, regardless of the time structure.

JEL Classification: H42; L13

Funding statement: This work was supported by JSPS KAKENHI (15k03347 and 16K03612).

Acknowledgement

We thank Hiroaki Ino, Dan Sasaki, Leonard F.S. Wang, and the participants of International Workshop on Mixed Oligopolies for their helpful comments. We are indebted to anonymous referees for their precious and constructive comments and suggestions. We are responsible for any remaining errors.

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Published Online: 2017-5-26

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