Natural monopoly privatisation under different regulatory regimes: A comparison of New Zealand and Australian airports

Abstract

Purpose

To compare the profitability and technical efficiency of firms in a monopoly industry, airports, operating with different degrees of market power and under differing regulatory regimes, minimalist in New Zealand and interventionist in Australia.

Design/methodology/approach

Unlike previous privatisation studies, this study measures efficiency and profitability separately. Using data envelopment analysis (DEA), the technical efficiency of privatised airports is assessed, and this independent measure is used in regression analyses to determine whether efficiency, regulation or privatisation is related to airport profitability.

Findings

For firms with monopolistic characteristics operating under minimalist regulation, profitability is related to market power, not efficiency improvements. For firms operating in a regulated environment, profitability is related to regulation, which constrains market power but does not impede efficiency.

Research limitations/implications

This study is limited by its small sample size and its generalisability due to its single industry and regional focus. However, the findings support assertions that the impact of privatisation cannot be assessed independently of industry structure and regulation.

Practical implications

Policy makers considering SOE privatisation in non‐competitive markets should introduce either competition or regulation if firm efficiency is a desired outcome.

Originality/value

Academics and policy makers should be aware that privatisation and competition are not only complementary, as per the extant literature, but they are essential bedfellows. In the absence of competition, regulation is required to control for market power.

Citation

Domney, M.D., Wilson, H.I.M. and Chen, E. (2005), "Natural monopoly privatisation under different regulatory regimes: A comparison of New Zealand and Australian airports", International Journal of Public Sector Management, Vol. 18 No. 3, pp. 274-292. https://doi.org/10.1108/09513550510591551