Privatization and Competition Policy

Abstract

Why are we discussing privatization in a book about competition policy? Because the scope of government and the role of the state are central to broader issues of competition. Privatization of monopolies without sufficient antitrust protection has been a recurring complaint among critics of privatization. So, on the other side, has been anticompetitive behavior by state-owned enterprises that often are not subject to antitrust at all. More theoretically, antitrust law may focus on certain problems and choose to ignore others as being unrealistic because of an assumption that firms behave as profit maximizers. But given the mass of public choice literature exploring what governments supposedly maximize, as well as empirical evidence that privatization often increases productivity and profitability, this may be a bad assumption when firms are owned (or even heavily regulated) by government. This chapter, therefore, explores the links between privatization and competition policy.