SFB 303 Discussion Paper No. A - 79
Author: Bös, Dieter, and Wolfgang Peters
Title: Privatization, Efficiency, and Market Structure
Abstract: Privatization typically increases the productive efficiency of public enterprises. However, in the case of
monopolistic or oligopolistic market structure the involved enterprises will switch to higher profits and therefore
exploit the consumers. In that case only so many shares should be sold as to equate the social valuation of the
efficiency increases and the social valuation of the profit increases. The partially privatized firm does not work at
the overall production possibility frontier: unwanted profit increases do not allow to exhaust fully the potential
increases in efficiency. Only in a perfectly competitive market structure the firm should always fully be
privatized.
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Creation-Date: October 1986
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