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Privatization and Optimum-Welfare in an International Cournot Duopoly

Author

Listed:
  • Fernanda A. Ferreira

    (Applied Management Research Unit and Polytechnic Institute of Porto, Portugal)

Abstract

In this paper, we will analyse the relationship between privatization of a public firm and tax revenue for the domestic government in an international competition, with import tariffs. We consider a duopoly model where a domestic public firmand a foreign private firmcompete in the domesticmarket, asCournot players. Furthermore, the domestic government imposes a tariff to regulate an imported good, and may have a higher preference for tariff revenue than for social welfare. We compute the outputs at equilibrium and we show that privatization (i) will increase the profits of both domestic and foreign firms; (ii) will increase the tariff imposed to the imported good; and (iii) will decrease the domestic welfare. Furthermore, we demonstrate that a rise in the government’s preference for tariff revenues raises the social welfare in both mixed and private models.

Suggested Citation

  • Fernanda A. Ferreira, 2016. "Privatization and Optimum-Welfare in an International Cournot Duopoly," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 14(4 (Winter), pages 351-358.
    • Handle: RePEc:mgt:youmgt:v:14:y:2016:i:4:p:351-358
    as

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    References listed on IDEAS

    as
    1. Sang-Ho Lee & Lili Xu & Zhao Chen, 2013. "Competitive Privatization And Tariff Policies In An International Mixed Duopoly," Manchester School, University of Manchester, vol. 81(5), pages 763-779, September.
    2. Toshihiro Matsumura & Akira Ogawa, 2010. "On The Robustness Of Private Leadership In Mixed Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 49(2), pages 149-160, June.
    3. de Fraja, Giovanni & Delbono, Flavio, 1989. "Alternative Strategies of a Public Enterprise in Oligopoly," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 302-311, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    game theory; industrial organization; Cournot model; privatization;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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