Privatization and Foreign Competition

Lars Persson and Norbäck, Pehr-Johan
Authors registered in the RePEc Author Service: Pehr-Johan Norbäck

No 2735, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper determines the equilibrium market structure in a mixed international oligopoly, where the state enterprise's assets are sold at an auction. The model suggests that low greenfield costs and low trade costs induce foreign acquisitions. The intuition is that domestic firms can then not prevent foreign firms from becoming strong competitors and thus, their willingness to pay for the state assets is low. We also find that profit shifting from domestic to foreign firms generated by National Treatments clauses is partly paid for by the foreign investor in the bidding competition over the state assets. The reason is that the foreign firm pays a price for the state assets equal to the domestic firm's valuation of the assets. But the domestic firm's valuation of the assets is the negative impact on this firm through the decline in profits created by the foreign acquisition.

Keywords: Privatization; Failing firms; Fdi; Acquisitions; National treatment (search for similar items in EconPapers)
JEL-codes: F23 L13 L33 (search for similar items in EconPapers)
Date: 2001-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Privatization and foreign competition (2004)
Working Paper: Privatization and Foreign Competition (2001)
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