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
Date Written: May 1, 2015
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
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