A partially privatized public firm competes with a private one in a game of endogenous product differentiation. The public firm maximizes the median voter's utility. I show that: (i) the public firm's profits may exceed those of its private competitor; (ii) the socially optimal degree of privatization is interior.
Economists like competition because, among other things, it decreases prices expanding output; but do policymakers like it as well? I study the problem of a re-election-seeking policymaker that controls the degree of competition in a given industry. I find that the policymaker may want to restrict entry. Moreover, the implemented degree of competition: (i)negatively depends on the tax rate on profits; (ii) positively depends on the degree of labor intensity of production; and (iii) positively depends on the steepness of the wealth distribution and on the average wealth.