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Privatization, foreign competition, and social efficiency of free entry

Author

Listed:
  • Wang, Leonard F.S.
  • Lee, Jen-yao
  • Hsu, Chu-chuan

Abstract

This paper examines privatization policy and entry regulation in a mixed oligopoly market with foreign competitors and free entry of domestic private firms. We demonstrate that if the number of domestic private firms is small, an import subsidy may be chosen and the optimal privatization policy is full privatization. However, if the number of domestic private firms is large, an import tariff is imposed and the optimal privatization policy is partial privatization. We also show that the long-run degree of privatization is larger than the short-run one, and the long-run tariff rate is smaller than the short-run tariff if and only if the entry cost of domestic private firms is sufficiently low. Furthermore, as long as the entry cost is relatively lower, domestic entry is socially excessive whether it is free trade or the domestic government imposes the tariff policy.

Suggested Citation

  • Wang, Leonard F.S. & Lee, Jen-yao & Hsu, Chu-chuan, 2014. "Privatization, foreign competition, and social efficiency of free entry," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 138-147.
  • Handle: RePEc:eee:reveco:v:31:y:2014:i:c:p:138-147
    DOI: 10.1016/j.iref.2014.01.017
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Leonard Wang & Angela Chao & Jen-yao Lee, 2015. "R&D and Social Inefficiency of Entry," Journal of Industry, Competition and Trade, Springer, vol. 15(2), pages 181-187, June.
    2. Bian, Junsong & Guo, Xiaolei & Li, Kevin W., 2015. "Distribution channel strategies in a mixed market," International Journal of Production Economics, Elsevier, vol. 162(C), pages 13-24.
    3. repec:eee:reveco:v:51:y:2017:i:c:p:444-454 is not listed on IDEAS
    4. Nakamura, Yasuhiko, 2014. "Capacity choice in a duopoly with a consumer-friendly firm and an absolute profit-maximizing firm," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 105-117.
    5. Wang, Chia-Chi & Chiou, Jiunn-Rong, 2015. "An analysis of policy harmonization on privatization and trade liberalization," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 279-290.
    6. Chen, Yi-Wen & Yang, Ya-Po & Wang, Leonard F.S. & Wu, Shih-Jye, 2014. "Technology licensing in mixed oligopoly," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 193-204.
    7. Liu, Yi & Matsumura, Toshihiro & Zeng, Chenhang, 2018. "The Relationship between Privatization and Corporate Taxation Policies," MPRA Paper 89784, University Library of Munich, Germany, revised Oct 2018.
    8. Wang, Leonard F.S. & Tomaru, Yoshihiro, 2015. "The feasibility of privatization and foreign penetration," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 36-46.
    9. 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.
    10. repec:eee:reveco:v:50:y:2017:i:c:p:1-7 is not listed on IDEAS
    11. Wang, Leonard F.S., 2016. "Do industrial and trade policy lead to excess entry and social inefficiency?," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 354-362.
    12. 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.
    13. Xu, Lili & Lee, Sang-Ho & Wang, Leonard, 2017. "Strategic Trade and Privatization Policies in Bilateral Mixed Markets," MPRA Paper 80340, University Library of Munich, Germany.
    14. Nakamura, Yasuhiko, 2015. "Endogenous choice of strategic incentives in a mixed duopoly with a new managerial delegation contract for the public firm," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 262-277.

    More about this item

    Keywords

    Partial privatization; Foreign competitors; Tariff; Free entry; Insufficient entry;

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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