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Should One Sell Domestic Firms to Foreign Ones? A Tale of Delegation, Acquisition and Collusion

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  • D. Dragone

Abstract

In a model of repeated Cournot competition under complete information, I show how the existence of a fringe of managerial rms affects the stability of a cartel of strict pro t-maximizing rms. There always exists a critical dimension of the fringe that makes the cartel unstable, and this dimension is non-monotone in the total number of rms. By appropriately selecting the dimension of the fringe, a policy maker can a¤ect the equilibrium outcome. As an example, I consider the case of a domestic authority that is contemplating whether to allow entry of a fringe of managerial foreign rms in the domestic market to increase the competitive pressure, thereby enhancing domestic welfare.

Suggested Citation

  • D. Dragone, 2008. "Should One Sell Domestic Firms to Foreign Ones? A Tale of Delegation, Acquisition and Collusion," Working Papers 623, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:623
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    1. Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, vol. 11(1-2), pages 37-42.
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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