Should One Sell Domestic Firms to Foreign Ones? A Tale of Delegation, Acquisition and Collusion

Davide Dragone

Rivista di Politica Economica, 2007, vol. 97, issue 3, 85-112

Abstract: In a model of repeated Cournot competition under complete information, I show how the existence of a fringe of managerial firms affects the stability of a cartel of strict profit-maximizing firms. There always exists a critical dimension of the fringe that makes the cartel unstable, and this dimension is non-monotone in the total number of firms. By appropriately selecting the dimension of the fringe, a policy maker can affect the equilibrium outcome. As an example, I consider the case of a domestic authority that is contemplating whether to allow entry of a fringe of managerial foreign firms in the domestic market to increase the competitive pressure, thereby enhancing domestic welfare.

JEL-codes: D43 L13 L21 (search for similar items in EconPapers)
Date: 2007
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