MARKET STRUCTURE AND PRIVATIZATION POLICY UNDER INTERNATIONAL COMPETITION*

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  • T. Matsumura and Y. Tomaru: Privatization and International Competition

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We investigate the relations among market structure, privatization, and tax-subsidy policies. We find that if there is no foreign competitor, privatization does not matter under the optimal tax-subsidy policy regardless of the number of firms. However, this is not true if there are foreign competitors; further, privatization is more likely to improve welfare when the number of firms is larger even under the optimal tax-subsidy policy. We also investigate two Stackelberg models: public leadership and private leadership. We find that private leadership yields a larger (smaller) total social surplus than public leadership when the presence of foreign firms among the private firms is small (large).

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