X-inefficiency and Privatization in a Mixed Duopoly

다국어 초록 (Multilingual Abstract)

The purpose of this study is two-fold: First, we investigate how X-inefficiency affects the behaviors of firms in a mixed oligopoly market. Second, we explore whether optimal subsidies can restore the social optimum like the previous literature on subsidization, with assuming that the efficiency of a public firm depends on the degree of privatization. The main results are as follows. First, despite higher marginal cost due to X-inefficiency, the price of a public firm tends to be lower than that of a private firm, when the degree of nationalization of the public firm is low enough. Second, if the marginal effect of nationalization on X-inefficiency measured at full privatization is relatively low and the elasticity of X-inefficiency measured at full nationalization is greater than the critical level, then the partial privatization is the optimal strategy from the social welfare viewpoint. Third, when an efficiency gap exists between firms, asymmetric subsidization can restore the social optimum, and the optimal subsidization level is not directly related to the degree of nationalization, but is affected by the efficiency gap. In addition, the subsidy for a private firm is larger than that for a public firm, which is relatively inefficient compared to the private firm.

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