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Privatization Policy in an International Oligopoly

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  • Pehr-Johan Norbäck
  • Lars Persson

Abstract

This paper studies privatization policy in an international oligopoly. The argument that equal treatment of foreign investors will be detrimental to domestic welfare by shifting profits from domestic to foreign firms is shown to be less relevant in privatization auctions than for greenfield FDI. This is because such profit shifts are paid for in part by foreign firms in the bidding competition for the privatized firm in the auction. It is also shown that small local equity requirements are likely to be beneficial, but large ones are counterproductive, preventing welfare-enhancing foreign acquisitions. Copyright (c) The London School of Economics and Political Science 2005.

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 72 (2005)
Issue (Month): 288 (November)
Pages: 635-653

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Handle: RePEc:bla:econom:v:72:y:2005:i:288:p:635-653

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References

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  1. Steffen Huck & Kai A. Konrad, 2004. "Merger Profitability and Trade Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(1), pages 107-122, 03.
  2. Norbäck, Pehr-Johan & Persson, Lars, 2001. "Privatization and Foreign Competition," CEPR Discussion Papers 2735, C.E.P.R. Discussion Papers.
  3. Konrad, Kai A. & Erik Lommerud, Kjell, 2001. "Foreign direct investment, intra-firm trade and ownership structure," European Economic Review, Elsevier, vol. 45(3), pages 475-494, March.
  4. Horn, Henrik & Levinsohn, James A, 2000. "Merger Policies And Trade Liberalization," CEPR Discussion Papers 2459, C.E.P.R. Discussion Papers.
  5. Ellingsen, Tore & Warneryd, Karl, 1999. "Foreign Direct Investment and the Political Economy of Protection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 357-79, May.
  6. Horn, Henrik & Persson, Lars, 1999. "The Equilibrium Ownership of an International Oligopoly," CEPR Discussion Papers 2302, C.E.P.R. Discussion Papers.
  7. Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, vol. 32(1-2), pages 109-129, February.
  8. Schmidt, Klaus M. & Schnitzer, Monika, . "Methods of privatization: Auctions, bargaining, and giveaways," Chapters in Economics, University of Munich, Department of Economics.
  9. Hoekman, Bernard & Saggi, Kamal, 2002. "Trade versus Direct Investment: Modal Neutrality and National Treatment," CEPR Discussion Papers 3375, C.E.P.R. Discussion Papers.
  10. Valerie A. Ramey & Matthew D. Shapiro, 2001. "Displaced Capital: A Study of Aerospace Plant Closings," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 958-992, October.
  11. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc.
  12. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Norbäck, Pehr-Johan & Persson, Lars, 2005. "Investment Liberalization - Why a Restrictive Cross-Border Merger Policy can be Counterproductive," Working Paper Series 644, Research Institute of Industrial Economics.
  2. Onur Koska, 2009. "Foreign Direct Investment For Sale," Working Papers 0910, University of Otago, Department of Economics, revised Oct 2009.
  3. Karl-Markus Modén & Pehr-Johan Norbäck & Lars Persson, 2008. "Efficiency and Ownership Structure: The Case of Poland," The World Economy, Wiley Blackwell, vol. 31(3), pages 437-460, 03.
  4. O. Amerighi & G. De Feo, 2007. "Competition for FDI in the Presence of a Public Firm and the Effects of Privatization," Working Papers 605, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. Norbäck, Pehr-Johan & Persson, Lars, 2008. "Cross-Border Mergers & Acquisitions Policy in Service Markets," Working Paper Series 743, Research Institute of Industrial Economics.
  6. Ulus Aysegul & Yildiz Halis M., 2012. "On the Relationship between Tariff Levels and the Nature of Mergers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-40, December.
  7. Norbäck, Pehr-Johan & Persson, Lars & Vlachos, Jonas, 2006. "Cross-Border Acquisitions and Corporate Taxes: Efficiency and Tax Revenues," Working Paper Series 663, Research Institute of Industrial Economics.
  8. Toshihiro Matsumura & Noriaki Matsushima & Ikuo Ishibashi, 2009. "Privatization and entries of foreign enterprises in a differentiated industry," Journal of Economics, Springer, vol. 98(3), pages 203-219, December.
  9. Stennek, Johan, 2014. "Exclusive quality – Why exclusive distribution may benefit the TV-viewers," Information Economics and Policy, Elsevier, vol. 26(C), pages 42-57.
  10. Stennek, Johan, 2007. "Exclusive Quality - Why Exclusive Distribution May Benefit the TV Viewers," CEPR Discussion Papers 6072, C.E.P.R. Discussion Papers.
  11. Beladi, Hamid & Chakrabarti, Avik, 2008. "Foreign equity participation under incomplete information," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 279-295, July.

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