Trade, industrial, and privatization policies with endogenous market structure

Abstract

This study finds that in an international mixed oligopoly at free entry equilibrium, social welfare under import tariff cum privatization is higher than output subsidy cum privatization, and the dual subsidy‐tariff policy cum privatization degenerates into a single tariff policy cum privatization. The reason is that an output subsidy or the dual subsidy‐tariff policy will incentivize domestic private firms to enter the free‐entry equilibrium. Thus, the number of domestic firms with free entry is excessive, and social welfare deteriorates. A privatization policy is pivotal in the long run and is still more effective than a single subsidy policy.