International Trade and Strategic Privatization

Abstract

The literature on mixed oligopoly does not consider that there is strategic interaction between governments when they decide whether to privatize their public firms. In order to analyze this quetion we consider two countries; In each country there is one public firm and n private firms. Firms have a constant marginal cost of production and the public firm is less efficient than the private firms. In this framework, we show that when the marginal cost of the public firms takes an intermediate value only one government privatizes its public firm and that government obtains a lower social welfare than the other.