Pricing Strategies and Partial Privatization Policy

This study examines whether discriminatory or uniform pricing is socially preferable in the context of introducing partial privatization: where a firm has a mixture of public and private ownership. To this end, we employ a model that assumes two asymmetric regions and two firms–one that is wholly private, and the other that can range from fully government-owner to wholly private–that compete on price in one of the two regions. We conclude that, under discriminatory pricing, partial privatization is socially preferable under certain conditions, whereas full government ownership is socially preferable under uniform pricing. In terms of comparing social welfare between the two options, when both firms have a different constant return to technology, discriminatory pricing is socially preferable; when both firms have a common decreasing return to scale technology, if the degree of differentiation between the two firms’ product is large, uniform pricing is socially preferable; otherwise, discriminatory pricing is socially preferable.