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