Competition for Local Public Services with Learning-by-doing and Transferability

Many local governments allow competition between public and private rms for provision of local public services in order to reduce procurement cost. Competition is usually introduced through competitive tendering for concession contracts. We show that in a symmetric competition between public and private rms with learning-by-doing, private rm's ability to transfer learning among concessions may reduce consumer's welfare. The model provides testable implications which are consistent with the empirical evidence: little competition for concessions, retail prices higher under private operation than under public one, and subsidies and retail prices to service providers increased over time. In addition, consumers' gains from switching to private ownership are higher in industries where private rms have low-ability to transfer learning among dierent concessions.