Tariff Protection and Privatization Policy: Endogenous Delegation in an Import-Competing Model

This paper investigates delegation strategies in the context of tariff and privatization policies between home and foreign firms competing in an international mixed duopoly under both Cournot and Bertrand competition. The findings reveal that delegation strategies vary depending on tariff and privatization policies, as well as the mode of competition. Under Cournot competition, both the home and foreign firms opt for delegation in a mixed duopoly. However, when the home firm is privatized, it chooses not to delegate, while the foreign firm continues to do so. Contrary to conventional wisdom, under Bertrand competition, the public home firm incentivizes its manager to adopt an aggressive output strategy. Regardless of privatization or tariff policies, the home firm’s dominant strategy is always to choose delegation. Meanwhile, the foreign firm’s delegation strategy under Bertrand competition depends on the tariff and privatization policies. Given these equilibrium delegation strategies, we show that the home country consistently implements a tariff policy, irrespective of the competition mode. Therefore, the home country leverages its public firm to increase output levels and enhance consumer surplus.