||This paper studies the optimal privatization policy of the government given products have the characteristics of network externality. The products may be compatible or incompatible. We constructs a mixed oligopoly Cournot competition model, in which a public firm competes with a private firm, to examine the optimal privatization policy of the government and the optimal outputs of two firms. The main findings are as follows. Firstly, when the products of two firms are incompatible, the public firm produces more, the private firm produces less, and the differentiation of the products of two firms increases due to the network externality. Besides, the optimal degree of the privatization is partial privatization. Secondly, when the products of two firms are compatible and the marginal cost increases quickly, the public firm produces less, the private firm produces more, and the differentiation of the products of two firms shrinks. What’s more, the optimal privatization policy is to maintain the public firm. Least but not last, if the marginal cost grows quickly, the optimal degree of privatization is higher when the products of two firms are incompatible. On the other hand, if the marginal cost grows slowly, the optimal degree of privatization is lower when the products of two firms are incompatible. In sum, if the products are incompatible, the network externality will make the optimal degree of privatization smaller. If the products are compatible, the optimal degree of privatization will be either larger or smaller due to the network externality.|
Cremer, H., M. Marchand, and J. F. Thisse (1991), “Mixed Oligopoly with Differentiated Products,” International Journal of Industrial Organization, 9, 43-53.
De Fraja, G. (1991), “Efficiency and Privatization in Imperfectly Competitive Industries,” Journal of International Economics, 39, 311-321.
De Fraja, G. and F. Delbono (1989), “Alternative Strategies of a Public Enterprise in Oligopoly,” Oxford Economic Papers, 41, 302-311.
Gabszewicz, J.J., Laussel, D., Sonnac, N., 2001. Press advertising and the ascent of the ‘Pensee Unique’. European Economic Review 45, 641-651.
Grilo, I., Shy, O., Thisse, J.-F., 2001. Price competition when consumer behavior is characterized by conformity or vanity. Journal of Public Economics 80, 385-408.
Katz, M. L. and C. Shapiro (1985), “Network Externalities, Competition, and Compatibility,” American Economic Review, 75, 424-440.
Matsumura, T. (1998), “Partial Privatization in Mixed Duopoly,” Journal of Public Economics, 70, 473-483.
Megginson, W. L. and J. M. Netter (2001), “From State to Market: A Survey of Empirical Studies on Privatization,” Journal of Economic Literature, 39, 321-389.
Shleifer Andrei (1998), “State versus Private Ownership,” International Economic Perspectives, 12, 133-150.
Pal, D. and M. D. White (1998), “Mixed Oligopoly, Privatization, and Strategic Trade Policy,” Southern Economic Journal, 65, 264-281.
White, M. D. (1996), “Mixed Oligopoly, Privatization and Subsidization,” Economics Letters, 53, 189-195.