Privatization Policy in an International Oligopoly

Journal of International Economics, 2004

This paper determines the equilibrium market structure in a mixed international oligopoly, where the state assets are sold at an auction. The model suggests that low greenÞeld costs and low trade costs induce foreign acquisitions. The intuition is that domestic Þrms can then not prevent foreign Þrms from becoming strong competitors and thus, their willingness to pay for the state assets is low. We also Þnd that proÞt shifting from domestic to foreign Þrms generated by National Treatments clauses is partly paid for by the foreign investor in the bidding competition over the state assets.

Theoretical Economics Letters, 2015

Using a simple mixed oligopoly model, this paper examines the relationship between marketopenings to foreign capital and privatization of a domestic public firm. Two types of marketopenings are considered. First is that, given the number of the firms, the restriction on the share of foreign capital in each corporate joint venture is relaxed. Second is that, given the share of foreign capital in each corporate joint venture, the restriction on the number of the firms is relaxed. The analysis shows that the optimal level of privatization critically depends on the types of market openings to foreign capital. The optimal level of privatization declines as the share of foreign capital in each corporate joint venture increases. By contrast, the optimal level of privatization rises with an increase in the number of the firms operating in the market. The two different strategies for market-openings result in the opposite impacts on the welfare-maximizing government's incentive for privatization.

Journal of Economics, 2012

We investigate how the presence of foreign investors affects privatization policy in a mixed oligopoly. We find that an increase in foreign investors' stockholding ratio in a privatized firm increases the optimal degree of privatization. JEL classification numbers: H42, H44, L13

Economic Modelling, 2011

This paper examines the impact of foreign penetration on privatization in a mixed oligopolistic market. In contrast to the simple framework of single domestic market with foreign entry by entry mode of foreign direct investment (FDI) or exports, our result shows that government should increase the degree of privatization along with increasing proportion of domestic ownership of multinational firms. Furthermore, we show that an increase in domestic ownership of multinational firms raises all domestic private firms' profit and social welfare, while it may either increase or decrease public firm's profit. With the aid of numerical example, intensive competition from private firms in general will enhance the degree of privatization gradually; in particular, the degree of privatization is lower in the presence of multinational firms.

Social Science Research Network, 2007

Recent evidence shows that developing countries and transition economies are increasingly privatising their public firms and at the same time experiencing rapid growth of inward foreign direct investment (FDI). In an international mixed oligopoly, we analyse the interaction between privatisation and FDI. We show that privatisation increases the incentive for FDI, which in turn, increases the incentive for privatisation compared to the situation of no FDI. The optimal degree of privatisation depends on the cost difference between the public and the foreign firms, and on the foreign firm's mode of entry. We show that our results are robust with respect to the incentive contracts between the owners and the managers. The incentive for FDI and is higher under the incentive contract than under the no incentive contract, and the optimal degree of privatisation is almost always higher under the incentive contract than under the no incentive contract.

Japanese Economic Review, 2009

This paper examines two policy instruments, privatization of the domestic public firm and imposition of a tariff on foreign private firms in an international mixed oligopolistic model with asymmetric costs. It first demonstrates that different orders of moves of firms will imply different government decisions on optimal tariff and on privatization policy. Following Hamilton and Slutsky (1990), this paper then uses an extended game to discuss endogenous roles. It indicates that the efficiency gain that highlights the importance of foreign competition is crucial in determining the welfare improving privatization policy. Moreover, the endogenous equilibria are associated with different government decisions on privatization.j ere_477 539..559 JEL Classification Numbers: D43, L13, L33.

2008

In this paper, we provide an explanation of why privatization may attract foreign investors interested in entering a regional market. Privatization turns the formerly-public firm into a less aggressive competitor since profit- maximizing output is lower than the welfare-maximizing one. The drawback is that social welfare generally decreases. We also investigate tax/subsidy competition for FDI before and after privatization. We

Journal of Public Economic Theory, 2013

European Economic Review, 2009

Recent evidence shows that developing countries and transition economies are increasingly privatizing their public firms and at the same time experiencing rapid growth of inward foreign direct investment (FDI). We show that there is a two-way causality between privatization ...

Eastern Economic Journal, 2014

This paper studies a single multinational market where private and public firms from different nationalities compete. The model allows the domestic government to subsidize its firms. In contrast to previous studies in this model, the subsidy varies with the market structure. Privatizing either the domestic public firm or the foreign public firm or both of them unambiguously increases the optimal subsidy rate and domestic social welfare. Nonetheless, both countries would benefit from simultaneous privatization.