Ownership versus competition: Efficiency in public enterprise

Certainly the introduction of product market competition into potentially competitive or, at least contestable, markets can improve performance. To take just one example, Morrison and Whinston (1986, 1986) estimate that even in the imperfectly contestable U.S. airline industry, the annual U.S. welfare gains from deregulation have been around $6 billion.But this paper argues, and further buttresses empirically, that ownership also matters and matters a lot. This does not necessarily imply that private ownership is always preferable to public ownership. PCs also engage in rent-seeking where possible, but they will try to maximize realizable rents by (relatively) keeping down production costs. Of course, where there are massive economies of scale and scope, high entry barriers, or externalities, public ownership may be preferred. (see Vickers and Yarrow, 1988).