Mixed oligopoly, privatization and subsidization

Abstract

This paper demonstrates three effects of domestic production subsidies in a mixed oligopoly industry regarding privatization and efficiency. First, if subsidies are used before and after privatization, welfare is unchanged by privatization. Second, if subsidies are used only before privatization, then privatization always lowers welfare, regardless of the number of private firms in the industry. Third, the subsidy contributes to overall efficiency in a mixed oligopoly due to cost distribution effects.