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A comment on Bradburd: “Privatisation of natural monopolies”

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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.

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  1. Department of Economics, Åbo Akademi University, Fänriksgatan 3b, FIN-20500, Turku, Finland

    Johan Willner

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Willner, J. A comment on Bradburd: “Privatisation of natural monopolies”. Rev Ind Organ 11, 869–882 (1996). https://doi.org/10.1007/BF00174413

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