Privatization , Competition , and Reform Strategies : Theory and Evidence from Russian Enterprise Panel Data

for discussions and comments on an earlier draft. We are also grateful to the Bank of Sweden Tercentenary Foundation and the Ruben Rausing Fund for support. Data collection was supported by Tacis ACE and MacArthur Foundation grants. All errors are our own. Working papers from the Stockholm Institute of Transition Economics and East European Economies are preliminary in nature, and are circulated to promote discussion and critical comment. Any references to individual working papers should clearly state that the paper is preliminary. The views expressed here are the authors' own and not necessarily those of the Institute or any other organization or institution. 1 Abstract We develop a simple Cournot model implying that privatizing a firm is a substitute for exposing it to competitive markets, but privatizing its competitors is complementary in increasing firm efficiency. Our empirical analysis uses augmented 3-factor translog production functions estimated on 1992-99 panel data for 13,288 Russian manufacturing enterprises. We find that nonstate ownership of a firm reduces the marginal efficiency impact from product market dispersion, but the share of its competitors that are nonstate increases this marginal impact, suggesting that an important indirect impact of private ownership is intensification of market competition.