Market Structure and Privatization Policy Under International Competition*

Abstract

We investigate the relations among market structure, privatization, and tax‐subsidy policies. We find that if there is no foreign competitor, privatization does not matter under the optimal tax‐subsidy policy regardless of the number of firms. However, this is not true if there are foreign competitors; further, privatization is more likely to improve welfare when the number of firms is larger even under the optimal tax‐subsidy policy. We also investigate two Stackelberg models: public leadership and private leadership. We find that private leadership yields a larger (smaller) total social surplus than public leadership when the presence of foreign firms among the private firms is small (large).

Taxation on a mixed oligopoly in the presence of foreign ownership

“…These result can also be found in Matsumura and Tomaru (2012) and Lin and Matsumura (2012). The reason is as follows.…”

“…18. Matsumura and Tomaru (2012) has a similar result that the optimal policy could be subsidy or tax; however, we further point out that whether a subsidy or a tax should be adopt is independent with the pubic firm's inefficiency level. 19.…”

“…Some papers analyze the effect of mixture ownership on the degree of privatization without taxation policy (see Han and Ogawa 2009;Cato and Matsumura 2012;Lin and Matsumura 2012). A closely linked work is provided by Matsumura and Tomaru (2012), who examines the relations among market structure, privatization and tax-subsidy policies. As in our analysis, they consider that the private firms are partially owned by foreign investors and find that the privatization neutrality theorem is true when there does not exist any foreign investor.…”

An analysis of entry-then-privatization model: welfare and policy implications

“…Wang and Lee (2013) introduced foreign firms into the framework of Ino and Matsumura (2010) showing that foreign ownership matters in Stackelberg models. Matsumura and Tomaru (2012) revisited the privatization neutrality theorem presented by White (1996) showing that his result does not hold under foreign ownership of the private firms. 9 Our result holds true even when multiple public firms exist.…”

Privatization and Employment in Post-Communist Countries

“…Several pioneering works (De Fraja and Delbono [1], Fjell and Pal [2], and Matsumura [3]) found that the privatization of public firms improves social welfare, and that it is optimal to partially privatize public firms. Furthermore, later studies extended these models in many directions and found several interesting results (see White [4], Payago-Theotoky [5], Kato and Tomaru [6], Matsumura and Tomaru [7], for example).…”