TIME-BASED COMPETITION AND THE PRIVATIZATION OF SERVICES

We develop a vertical differentiation model which exhibits congestion externalities and in which firms choose service time. This model is formulated for a variety of industry and ownership structures. We find an ownership effect in which service speeds decrease when public services are privatized. This effect, however, could be offset and even reversed by increased efficiency of private services. We also investigate how prices and commitment ability with respect to service times will affect the service speeds in equilibrium.