Market Structure and Privatization Policy Under International Competition

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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