Privatization: to increase the firm’s efficiency and profitability
Competition: privatization without liberalization fails to improve performance.
Institutional re-arrangement :
the sequence of the reform (Newberry, Wallsten).
a). breaking up monopolies before privatization
b). establishing separate regulatory authorities prior to privatization
Interplay Between the Timing of Privatization and Competition Case 4 Privatized incumbent competing against entrants (lower expected returns from the private monopoly) Case 2 Private monopoly (higher expected returns from monopoly, and privatization is more likely to be successful) Privatized firm Case 3 Public incumbent competing against private entrants (lowest expected returns from the private monopoly due to competition and x-inefficiency) Case 1 Public monopoly State-owned enterprise Competitive market No competition