Privatization Policies by National and Regional Governments

Abstract

In order to analyze the privatization policies undertaken by the national and regional governments, I consider a horizontal differentiation model with price competition in which a country consists of two regions of different sizes. I show that public-sector intervention by either the national or regional government is essential for achieving the social optimum. The preferences of consumers and firms about privatization policy are completely opposite: consumers prefer a regional public-sector intervention, while firms prefer a national public-sector intervention. Finally, I find that the preferences of the two regions about market structures are also opposite: the least populated region prefers the private duopoly, while the most populated region prefers a government intervention in the market.