Partial Privatization with Endogenous Choice of Strategic Variable

Abstract

[Abstract] This paper analyzes the optimal privatization policy when firms endogenously choose their strategic variable. The level of privatization is shown to determine: (i) the choice of strategic variable, whereby an asymmetric equilibrium could emerge (either Cournot–Bertrand or Bertrand–Cournot); (ii) the stability of equilibrium when the partially privatized firm and the private firm choose quantity and price respectively as the strategic variable; and (iii) the level of welfare, whereby Cournot–Cournot and Bertrand–Cournot games could lead to a greater welfare than the Bertrand–Bertrand model