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How much should you own? Cross-ownership and privatization

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  • Rupayan Pal

    () (Indira Gandhi Institute of Development Research)

Abstract

This paper investigates the effects of cross-ownership on optimal privatization, and vice-versa, in mixed duopoly. It shows that cross-ownership is profitable to the private firm only if the level of privatization of the public firm is sufficiently high. In equilibrium, cross-ownership does not take place even if there is partial privatization. However, the possibility of cross-ownership significantly limits the socially optimal level of privatization in most of the situations. Moreover, it demonstrates that full nationalization is socially optimal, in case of sufficiently convex identical cost functions and homogeneous goods. These results have strong implications to both divestment and competition policies.

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File URL: http://www.igidr.ac.in/pdf/publication/WP-2012-008R.pdf
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Bibliographic Info

Paper provided by Indira Gandhi Institute of Development Research, Mumbai, India in its series Indira Gandhi Institute of Development Research, Mumbai Working Papers with number 2012-008.

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Length: 37 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:ind:igiwpp:2012-008

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Keywords: Cross-ownership; mixed duopoly; partial privatization; product differentiation;

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References

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  22. de Fraja, Giovanni & Delbono, Flavio, 1989. "Alternative Strategies of a Public Enterprise in Oligopoly," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 302-11, April.
  23. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
  24. Wang, Leonard F.S. & Chen, Tai-Liang, 2011. "Mixed oligopoly, optimal privatization, and foreign penetration," Economic Modelling, Elsevier, vol. 28(4), pages 1465-1470, July.
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  26. David Gilo & Yossi Moshe & Yossi Spiegel, 2006. "Partial Cross Ownership and Tacit Collusion," RAND Journal of Economics, The RAND Corporation, vol. 37(1), pages 81-99, Spring.
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Citations

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Cited by:
  1. Rupayan Pal & Bibhas Saha, 2010. "Does Partial Privatization Improve the Environment?," Working Papers id:3122, eSocialSciences.
  2. Luciano Fanti, 2011. "Product differentiation and duopoly: when social welfare benefits from cross-shareholding," Discussion Papers 2011/129, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.
  3. Rupayan Pal & Bibhas Saha, 2010. "Does partial privatization improve the environment," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2010-018, Indira Gandhi Institute of Development Research, Mumbai, India.
  4. Luciano Fanti, 2011. "Cross-participated firms and welfare," Discussion Papers 2011/127, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.
  5. Luciano Fanti, 2011. "Welfare effects of cross-ownership in a unionised duopoly," Discussion Papers 2011/125, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.
  6. Fanti, Luciano & Gori, Luca, 2011. "Cross-ownership and stability in a Cournot duopoly," MPRA Paper 34574, University Library of Munich, Germany.
  7. Luciano Fanti, 2011. "Cross-ownership and unions in a Cournot duopoly: when profits reduce with horizontal product differentiation," Discussion Papers 2011/128, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.

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