Privatization and Restructuring in Concentrated Markets

Abstract:     
This Paper examines the restructuring of state assets in markets deregulated by privatizations and investment liberalizations. We show that a net revenue maximizing government has a stronger incentive to restructure than a profit maximizing acquiring firm: A restructuring firm only takes into account how much its own profit will increase. The government internalizes that restructuring increases the sales price not only due to the increase in the acquirer's profit, but also due to a reduced profit for the non-acquirer, whose profits decrease due to its rival's restructuring. We also identify situations where a slow sale can significantly reduce the sales price because of strategic investment and product market effects.

Number of Pages in PDF File: 37

Keywords: Privatization, asset ownership, restructuring, oligopoly

JEL Classification: D44, L13, L33, L40, P31

working papers series