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Vertically Related Markets, Foreign Competition and Optimal Privatization Policy
Author(s) -
Chang Winston W.,
Ryu Han Eol
Publication year - 2015
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12172
Subject(s) - upstream (networking) , downstream (manufacturing) , competition (biology) , profit (economics) , profit margin , economics , market economy , margin (machine learning) , industrial organization , market share , microeconomics , international economics , business , finance , operations management , computer network , ecology , machine learning , computer science , biology
This paper examines the optimal privatization policy in vertically related markets in which an upstream public firm competes with a foreign private rival in supplying a produced input to the domestic and foreign downstream firms competing in the domestic market. It shows that if the upstream public firm's market share is sufficiently high, full nationalization is optimal and the resulting profit margin is positive. However, complete privatization is never optimal. Numerical simulations reveal both the diverse optimal privatization regimes and the patterns of optimal privatization levels with varying numbers of the domestic and foreign downstream firms.