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Export rivalry, vertically-related markets, and optimal public ownership policy

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  • Chang, Winston W.
  • Ryu, Han Eol

Abstract

This paper considers the optimal public ownership policy of an upstream firm which competes with a foreign private rival. Both firms supply a produced input to the domestic and foreign downstream firms that compete in an export market. The paper shows that complete privatization of the domestic upstream firm is never optimal. It will likely be fully nationalized if its market share is high, the domestic downstream firms' market share is low, and the total number of firms in the downstream is large. Simulation results reveal that the public firm's optimal profit margin may be negative and that the government ownership level may exhibit a reswitching phenomenon as the number of domestic downstream firms keeps growing. The paper sheds light on the possibility of using government ownership policy as a pseudo-trade and industrial policy.

Suggested Citation

  • Chang, Winston W. & Ryu, Han Eol, 2016. "Export rivalry, vertically-related markets, and optimal public ownership policy," Economic Modelling, Elsevier, vol. 54(C), pages 392-401.
    • Handle: RePEc:eee:ecmode:v:54:y:2016:i:c:p:392-401
    DOI: 10.1016/j.econmod.2016.01.010
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    2. Ki‐Dong Lee & Kangsik Choi & DongJoon Lee, 2020. "Endogenous vertical structure and trade policy in an import‐competing market," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(8), pages 1431-1445, December.
    3. Ryu, Han Eol, 2023. "Public utility ownership and in-kind trade policy in vertically related markets," Utilities Policy, Elsevier, vol. 81(C).
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    5. Luciano Fanti & Domenico Buccella, 2023. "Vertical industry and strategic trade policy," SN Business & Economics, Springer, vol. 3(2), pages 1-16, February.
    6. Chang, Winston W. & Chen, Fang-yueh, 2016. "Strategic managerial delegation and industrial policy competition in vertically-related markets," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 429-442.
    7. Chen, Fang-Yueh, 2023. "Trade warfare and sanctions in vertically related markets," Economic Modelling, Elsevier, vol. 121(C).

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