Although many papers consider the effect of switching costs on entry when the incumbent firm is privately‐owned, the effect when the incumbent firm is publicly‐owned has not been analyzed. We seek to fill that gap here and show that, unlike the case of a private incumbent where entry may decrease welfare, with a public incumbent entry always raises welfare. We also study whether the government privatizes the public incumbent firm and whether it deters entry. We find that switching costs reduce the range of values of the parameters for which privatization is chosen. Moreover, the government may prefer a private monopoly to a public monopoly or even a mixed duopoly. Finally, there is more privatization and less entry if the government decides on both privatization and entry than if it decides only on privatization.