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Common Ownership among Private Firms and Privatization Policies

Haraguchi, Junichi and Matsumura, Toshihiro (2020): Common Ownership among Private Firms and Privatization Policies.

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Abstract

This study investigates the relationship between the optimal privatization policy and the degree of common ownership among private firms by formulating a mixed oligopoly model in which one public firm competes against private firms under common ownership. We find that depending on the private firms' cost structure, one of the following three patterns emerges: (a) the optimal degree of privatization is increasing in the degree of common ownership, (b) the optimal degree of privatization is decreasing in the degree of common ownership, (c) an inverted U-shaped relationship exists between the two. If the marginal cost of private firms is constant, then (b) always emerges, regardless of whether the marginal cost of the public firm is increasing or constant. However, if the marginal cost of private firms is increasing, then all three patterns can emerge. Our results suggest that the property of the optimal privatization policy depends crucially on the cost structure of private firms.

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