A comment on Bradburd: "Privatisation of natural monopolies"

Johan Willner*

*Corresponding author for this work

Research output: Contribution to journalReview Article or Literature ReviewScientificpeer-review

17 Citations (Scopus)

Abstract

In a recent issue of this journal, Ralph Bradburd (1995) argues that the efficiency gains of privatising a natural monopoly are likely to outweigh any loss of allocative efficiency. However, a trade-off based on a definition of the total surplus which includes profits but not internal rents is flawed. Correcting the analysis shows that even stronger conditions have to be met before privatising a natural monopoly is beneficial. The same is true if demand schedules are iso-elastic rather than linear. Recent evidence on demand elasticity and efficiency differences suggests that privatisation would be likely to reduce welfare even according to Bradburd's approach.

Original languageEnglish
Pages (from-to)869-882
Number of pages14
JournalReview of Industrial Organization
Volume11
Issue number6
DOIs
Publication statusPublished - 1996
MoE publication typeA2 Review article in a scientific journal

Keywords

  • Allocative efficiency
  • Cost efficiency
  • Monopoly
  • Privatisation

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