Are state owned enterprises an obstacle to competitive markets? – the private enterprise perspective

The purpose of the project is to analyze the dynamics of competition between state-owned enterprise and private companies. What are the expectations of private companies when entering markets where state owned enterprises already are present? The project is financed by the Swedish Competition Authority.

State owned enterprises have a high prevalence in Swedish municipalities and county councils. Though, their effects on service quality and efficiency on these mixed markets are often unknown. Sappington & Sidak (2003) concludes, in a well cited scientific article, that state owned enterprises often have incentives to produce more and to price their products lower than their private counterparties.

The fact that state owned enterprises have somewhat different incentives compared to private companies makes us believe that private companies may act strategically differently when entering that type of mixed markets. The "soft budget-constraint" (Kornai & Maskin, 2003) for state owned enterprises, combined with the rules and regulations about public procurement, may affect the competitive environment.

The object of this project is to analyze how the static and dynamic effects on private companies impinge on market outcomes. By asking questions to private companies active in mixed markets we wish to create a better basis for legislation and more knowledge about when and why state owed companies may affect competition negatively.