Partial Privatization and Entry of Private Firms

Abstract

This paper investigates the relationship between partial privatization and the entry of private firms. The effects of foreign private firms’ entry on a public firm’s output and on the home country’s welfare are different from well known results, if the public firm is partially privatized. Furthermore, the effects of partial privatization on market performance, as well as the socially optimal degree of privatization, crucially depend on whether the new entrant is a domestic or foreign one. These findings provide new policy implications for a government that is considering privatizing its public firm, while facing the pressure of open markets.

Keywords: Mixed Oligopoly, Partial Privatization, Entry of Private Firms

JEL Classification: D00, L13