Partial privatization with endogenous choice of strategic variable

Abstract

This paper analyzes the optimal privatization policy when firms endogenously choose their strategic variable. The level of privatization is shown to determine: (i) the choice of strategic variable, whereby an asymmetric equilibrium could emerge (either Cournot–Bertrand or Bertrand–Cournot); (ii) the stability of equilibrium when the partially privatized firm and the private firm choose quantity and price respectively as the strategic variable; and (iii) the level of welfare, whereby Cournot–Cournot and Bertrand–Cournot games could lead to a greater welfare than the Bertrand–Bertrand model.