Economics at your fingertips  

Optimal Trade and Privatization Policies in an International Duopoly with Cost Asymmetry

Winston Chang

The Journal of International Trade & Economic Development, 2005, vol. 14, issue 1, 19-42

Abstract: This paper examines optimal trade and privatization policies in a mixed duopoly in which a pubic home firm competes with a more efficient foreign firm. The home firm is a Cournot competitor or a Stackelberg leader. The home government chooses the degree of privatization and import tariff to maximize national welfare. The paper examines the policy effects on industry equilibrium with general demand and cost structures and shows that the optimal level of privatization depends crucially upon the strategic substitutability-complementarity assumption. It further shows that if both policies are used under linear demand and quadratic costs, the equilibrium prices, firms' outputs, welfare and tariff rates are the same under Cournot and Stackelberg competition, and price equals the home firm's marginal cost. Neither full nationalization nor full privatization is optimal under Cournot, but full nationalization is always optimal under Stackelberg competition. If only one policy is used, a reduction in government's ownership of the public firm under Cournot competition and constant marginal costs calls for a higher optimal tariff rate. This result does not carry over to the case of increasing marginal costs, although the optimal tariff is lower under full nationalization than under full privatization.

Keywords: Privatization; tariff; mixed duopoly; cost asymmetry (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (40) Track citations by RSS feed

Downloads: (external link) (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from

Access Statistics for this article

The Journal of International Trade & Economic Development is currently edited by Professor Pasquale Sgro

More articles in The Journal of International Trade & Economic Development from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

Page updated 2019-03-31
Handle: RePEc:taf:jitecd:v:14:y:2005:i:1:p:19-42