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Export rivalry, vertically-related markets, and optimal public ownership policy

Winston Chang and Han Eol Ryu

Economic Modelling, 2016, vol. 54, issue C, 392-401

Abstract: This paper considers the optimal public ownership policy of an upstream firm which competes with a foreign private rival. Both firms supply a produced input to the domestic and foreign downstream firms that compete in an export market. The paper shows that complete privatization of the domestic upstream firm is never optimal. It will likely be fully nationalized if its market share is high, the domestic downstream firms' market share is low, and the total number of firms in the downstream is large. Simulation results reveal that the public firm's optimal profit margin may be negative and that the government ownership level may exhibit a reswitching phenomenon as the number of domestic downstream firms keeps growing. The paper sheds light on the possibility of using government ownership policy as a pseudo-trade and industrial policy.

Keywords: Optimal privatization; Vertically related market; Imperfect competition; Intermediate input; Market structure (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:54:y:2016:i:c:p:392-401

DOI: 10.1016/j.econmod.2016.01.010

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