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).