Public-Private Monopoly

Abstract

This article presents comparative statics of organizational modes of natural monopoly in public utilities with a focus on co-ownership and co-governance. Private monopoly lowers output and increases the price to maximize profit; public monopoly incurs higher costs due to the lack of know-how; and a regulated monopoly results in regulation costs to overcome informational asymmetries. A public–private partnership arises as an efficient organization mode when it enables the internalization of private know-how and saves regulation costs due to correspondingly sufficient private and public residual control rights. Public–private partnerships support higher prices than marginal costs due to rent sharing, with its upper price frontier decreasing in private residual control rights.