Privatization and Efficiency : Industry Effects of the Sale of British Airways

We analyze the effect of privatization on the performance of British Airways by examining the privatization's impact on airfares and competitors' stock prices. We find that stock prices of U.S. competitors fell a significant 7% upon British Airways' privatization, implying expectation of a more competitive British Airways. Closer rivals of British Airways experienced a greater drop in stock price than more distant rivals. Further, airfares in markets served by British Airways fell significantly upon privatization. The results suggest that a change from government to private ownership improves economic efficiency