TY - JOUR
T1 - Divestment and bank competition
AU - Saha, B.
AU - Sensarma, R.
N1 - “The original publication is available at www.springerlink.com”. Copyright Springer
PY - 2004
Y1 - 2004
N2 - We determine optimal divestment (partial privatization) and entry in banking in the context of a mixed oligopoly. When banks compete in deposits, greater entry is associated with higher divestment. However, social welfare improves with entry only when the private entrants are more efficient than the public bank. Further, when banks compete in interest rates with differentiated products, the public banks behavior resembles that of a price leader and it earns less profit than the private bank, if government holding in the public bank is sufficiently high. Competition becomes excessive in this case, and social welfare maximization requires greater divestment.
AB - We determine optimal divestment (partial privatization) and entry in banking in the context of a mixed oligopoly. When banks compete in deposits, greater entry is associated with higher divestment. However, social welfare improves with entry only when the private entrants are more efficient than the public bank. Further, when banks compete in interest rates with differentiated products, the public banks behavior resembles that of a price leader and it earns less profit than the private bank, if government holding in the public bank is sufficiently high. Competition becomes excessive in this case, and social welfare maximization requires greater divestment.
U2 - 10.1007/s00712-003-0025-y
DO - 10.1007/s00712-003-0025-y
M3 - Article
SN - 0931-8658
VL - 81
SP - 223
EP - 247
JO - Journal of Economics
JF - Journal of Economics
IS - 3
ER -