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Vertically-Related Markets, Foreign Competition, and Optimal Privatization Policy

Review of International Economics, vol. 23, issue 2, pp. 303-319, May 2015

23 Pages Posted: 26 Dec 2013 Last revised: 20 Mar 2016

Winston W. Chang

State University of New York at Buffalo - Department of Economics

Han Eol Ryu

Korea Institute for Industrial Economics and Trade

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2015

Abstract

This paper examines the optimal privatization policy in vertically related markets in which an upstream public firm competes with a foreign private rival in supplying a produced input to the domestic and foreign downstream firms in the domestic market. It shows that if the upstream public firm's market share is sufficiently high, full nationalization is optimal and the resulting profit margin is positive. However, complete privatization is never optimal. Numerical simulations reveal both the diverse optimal privatization regimes and the patterns of optimal privatization levels with varying numbers of the domestic and foreign downstream firms.

Keywords: Vertically-related Markets, Foreign Competition, Optimal Privatization Policy

JEL Classification: D43, H42, H44, L13, L22, L33

Suggested Citation

Chang, Winston W. and Ryu, Han Eol, Vertically-Related Markets, Foreign Competition, and Optimal Privatization Policy (May 1, 2015). Review of International Economics, vol. 23, issue 2, pp. 303-319, May 2015. Available at SSRN: https://ssrn.com/abstract=2371857 or http://dx.doi.org/10.2139/ssrn.2371857

Winston W. Chang (Contact Author)

State University of New York at Buffalo - Department of Economics ( email )

453 Fronczak Hall
Department of Economics, SUNY at Buffalo
Buffalo, NY 14260
United States
716-645-8671 (Phone)
716-645-2127 (Fax)

HOME PAGE: http://economics.buffalo.edu/facultyprofiles/winston-chang/

Han Eol Ryu

Korea Institute for Industrial Economics and Trade ( email )

370, Sicheong-daero,
Sejong-Si, 339-007
Korea, Republic of (South Korea)
82-44-287-3248 (Phone)

HOME PAGE: http://www.kiet.re.kr

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