Privatization Policy and Foreign Competition in Vertically Related Markets

Dianshuang Wang; Run Yuan; Lian Hu

doi:10.56557/jgembr/2023/v15i18184

Privatization Policy and Foreign Competition in Vertically Related Markets

Dianshuang Wang

Run Yuan

Lian Hu

Journal of Global Economics, Management and Business Research, Page 64-76
DOI: 10.56557/jgembr/2023/v15i18184
Published: 5 April 2023

Abstract

This paper examines the privatization policy of an upstream state-owned enterprise (SOE) that competes with a foreign private rival and a downstream SOE, wherein the upstream firm supplies an intermediate input to the downstream firms. Specifically, the study investigates two scenarios where the intermediate input is utilized in either the traded or non-traded sector. In the traded sector, foreign competition exists, while the non-traded sector consists of all domestic firms. The findings of the study indicate that, in the model where the downstream is a traded sector, partial privatization of the upstream SOE is not optimal when the downstream SOE is fully nationalized or privatized. On the other hand, in the model where the downstream is a non-traded sector, partial privatization of the upstream SOE is optimal when the downstream SOE is fully nationalized or fully privatized. Therefore, the study suggests that if the upstream industry supplies its product mainly to the non-traded sector, such as domestic transportation or construction, partial privatization of the upstream SOE is recommended. However, if the intermediate input primarily flows to traded sectors, such as steel or international shipment, partial privatization of the upstream SOE is not advisable.

Keywords:

Privatization
vertically related market
foreign competition
cournot competition

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How to Cite

Wang, D., Yuan, R., & Hu, L. (2023). Privatization Policy and Foreign Competition in Vertically Related Markets. Journal of Global Economics, Management and Business Research, 15(1), 64-76. https://doi.org/10.56557/jgembr/2023/v15i18184

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