One of the main reasons for the present drive towards privatisation is a general belief that change in ownership and competition will lead to efficiency in state owned enterprises (SOEs). This paper attempts to assess the impact of ownership and competition on efficiency of firms. To study the effect of ownership, efficiency of some Indian SOEs is compared (to the extent possible) with comparable private sector firms. To study the effect of competition, the efficiency of SOEs operating under a monopoly structure is compared with SOEs operating under a competitive market environment. Results show that, at the enterprise level, there is little empirical justification for a general presumption in favour of either type of ownership. Further, the empirical study results indicate that more than ownership, it is the degree of competition that affects the performance of an enterprise.
