The State as a Common Shareholder: Common Ownership, Consumer Surplus, and Competition

Abstract

We study a Cournot industry in which the state holds equity stakes in competing firms and thereby acts as a common shareholder. The government’s objective combines the return on its public portfolio with consumer surplus, while firms aggregate private and public-owner objectives according to ownership weights. The model separates three forces: rival-profit internalization, an own-profit channel created by proportional control, and a consumer-surplus channel that favors market expansion. In a general duopoly, a larger state share in a rival firm shifts a firm’s best response inward, whereas a larger own state share can raise or lower output depending on the relative strength of the financial and consumer-surplus motives. In a symmetric linear benchmark, equilibrium output and the ownership threshold are characterized in closed form. The threshold rises with the number of state-linked competitors. Profit taxation strengthens the fiscal return from softened competition, soft budget constraints weaken that mechanism, and ownership-dependent governance costs make state participation more contractionary. When the state chooses its stake endogenously, partial ownership can be optimal because market power is costly under a sufficiently strong consumer-surplus mandate or because deep state participation creates convex governance costs. Nonlinear-demand calculations and appendix robustness checks support the same qualitative logic. The analysis clarifies when partial privatization intensifies rivalry and when retained public stakes instead preserve market power.