Privatization and Efficiency in a Differentiated Industry

We consider a market in which a public firm competes against privates ones, and ask what happens when the public firm is privatized. In the short run, privatization is harmful because all prices rise : the disciplinary role of the public firm is lost. In the long run, privatization leads to further entry ; the net effect is beneficial if consumer preference for variety is not too weak. A sufficient statistic for welfare to be higher in the long run is that the public firm makes a loss. Profitable firms should not be privatized, in contrast with frequent practice. logistiqu