On the Benefit of Privatization in a Mixed Duopoly Service System.

This article analyzes a mixed duopoly service system comprising one private service provider (SP) focused on profit maximization and one public SP aimed at maximizing social welfare. Customers, heterogeneous in their quality preferences, choose among joining the private queue, the public queue, or balking. The study finds a paradox wherein welfare in a system with a welfare-maximizing public SP can be lower than in a system with two profit-maximizing private SPs, primarily due to workload imbalances causing congestion in the public system and underutilization of the private system. Introducing partial privatization—where the public SP's objective blends welfare and profit maximization—can better balance workloads, reduce congestion, and increase overall social welfare; full nationalization is never optimal, and full privatization may be desirable under certain conditions. These conclusions hold under the assumption that customers can balk (choose an outside option) and are delay sensitive, with caution advised when extending results to systems prioritizing service accessibility or emergency services.