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Privatization and Foreign Competition

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Author Info
Norbäck, Pehr-Johan
Persson, Lars

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Abstract

This Paper determines the equilibrium market structure in a mixed international oligopoly, where the state enterprise's assets are sold at an auction. The model suggests that low greenfield costs and low trade costs induce foreign acquisitions. The intuition is that domestic firms can then not prevent foreign firms from becoming strong competitors and thus, their willingness to pay for the state assets is low. We also find that profit shifting from domestic to foreign firms generated by National Treatments clauses is partly paid for by the foreign investor in the bidding competition over the state assets. The reason is that the foreign firm pays a price for the state assets equal to the domestic firm's valuation of the assets. But the domestic firm's valuation of the assets is the negative impact on this firm through the decline in profits created by the foreign acquisition.

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Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2735.

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Date of creation: Mar 2001
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Handle: RePEc:cpr:ceprdp:2735

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Related research
Keywords: Acquisitions; Failing Firms; FDI; National Treatment; Privatization;

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. 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. [Downloadable!] (restricted)
  2. Markusen, James R, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-89, Spring. [Downloadable!] (restricted)
  3. Horn, Henrik & Persson, Lars, 1999. "The Equilibrium Ownership of an International Oligopoly," CEPR Discussion Papers 2302, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Florencio Lopez-de-Silane, 1996. "Determinants of Privatization Prices," NBER Working Papers 5494, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Fosfuri, Andrea & Motta, Massimo & Rønde, Thomas, 1999. "Foreign Direct Investment and Spillovers through Workers' Mobility," CEPR Discussion Papers 2194, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Schmidt, Klaus M. & Schnitzer, Monika, 1997. "Methods of Privatization: Auctions, Bargaining and Give-Aways," CEPR Discussion Papers 1541, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Vickers, John & Yarrow, George, 1991. "Economic Perspectives on Privatization," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 111-32, Spring. [Downloadable!] (restricted)
  10. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1996. "How (Not) to Sell Nuclear Weapons," American Economic Review, American Economic Association, vol. 86(4), pages 814-29, September. [Downloadable!] (restricted)
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  11. Motta, Massimo, 1992. "Multinational firms and the tariff-jumping argument : A game theoretic analysis with some unconventional conclusions," European Economic Review, Elsevier, vol. 36(8), pages 1557-1571, December. [Downloadable!] (restricted)
  12. Sanna-Randaccio, Francesca, 1996. "New protectionism and multinational companies," Journal of International Economics, Elsevier, vol. 41(1-2), pages 29-51, August. [Downloadable!] (restricted)
  13. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1999. "Multidimensional Mechanism Design for Auctions with Externalities," Journal of Economic Theory, Elsevier, vol. 85(2), pages 258-293, April. [Downloadable!] (restricted)
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  14. Philippe Jehiel & Benny Moldovanu, 1996. "Strategic Nonparticipation," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 84-98, Spring. [Downloadable!] (restricted)
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  15. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Norbäck, Pehr-Johan & Persson, Lars, 2001. "Investment Liberalization - Who Benefits from Cross-Border Mergers & Acquisitions?," Working Paper Series 569, Research Institute of Industrial Economics. [Downloadable!]
  2. Tina Søreide & Kjetil Bjorvatn, 2003. "Corruption and market reform," CMI Working Papers WP 2003:7, CMI (Chr. Michelsen Institute), Bergen, Norway. [Downloadable!]
  3. Norbäck, Pehr-Johan & Persson, Lars, 2003. "Cross-Border Acquisitions and Greenfield Entry: Profitability and Stock Market Value," CEPR Discussion Papers 3998, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Tekin-Koru, Ayca, 2009. "Tariff-Jumping and the Form of FDI: Firm Level Evidence," MPRA Paper 12989, University Library of Munich, Germany. [Downloadable!]
  5. Norbäck, Pehr-Johan & Persson, Lars, 2007. "Globalization and Profitability of Cross-border Mergers & Acquisitions," CEPR Discussion Papers 6102, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Molnar, Jozsef, 2007. "Pre-emptive horizontal mergers: theory and evidence," Research Discussion Papers 17/2007, Bank of Finland. [Downloadable!]
    Other versions:
  7. 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. [Downloadable!]
  8. Norbäck, Pehr-Johan & Persson, Lars, 2003. "Privatization Policy in an International Oligopoly," Working Paper Series 608, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  9. Norbäck, Pehr-Johan & Persson, Lars, 2008. "Cross-Border Mergers & Acquisitions Policy in Service Markets," Working Paper Series 743, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  10. Görg, Holger & Hijzen, Alexander & Manchin, Miriam, 2007. "Cross-Border Mergers & Acquisitions and the Role of Trade Costs," CEPR Discussion Papers 6397, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Modén, Karl-Markus & Norbäck, Pehr-Johan & Persson, Lars, 2007. "Efficiency and Ownership Structure – The Case of Poland," Working Paper Series 703, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  12. Philippe Jehiel & Benny Moldovanu, 2005. "Allocative and Informational Externalities in Auctions and Related Mechanisms," Discussion Papers 142, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
  13. Norbäck, Pehr-Johan & Persson, Lars, 2003. "Endogenous Asset Ownership Structures in Deregulated Markets," Working Paper Series 604, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  14. Lommerud, Kjell Erik & Sørgard, Lars & Straume, Odd Rune, 2003. "National versus International Mergers in Unionised Oligopoly," CEPR Discussion Papers 4040, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  15. Norbäck, Pehr-Johan & Persson, Lars, 2002. "Investment Liberalization - Who Benefits from Cross Border Mergers," CEPR Discussion Papers 3166, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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