PRIVATIZATION AND EFFICIENCY - INDUSTRY EFFECTS OF THE SALE OF BRITISH-AIRWAYS

We analyze the effect of privatization on the performance of British A irways by examining the privatization's impact on airfares and competi tors' stock prices. We find that stock prices of U.S. competitors fell a significant 7% upon British Airways' privatization, implying expect ation of a more competitive British Airways. Closer rivals of British Airways experienced a greater drop in stock price than more distant ri vals. Further, airfares in markets served by British Airways fell sign ificantly upon privatization. The results suggest that a change from g overnment to private ownership improves economic efficiency.