Abstract
In this paper, we show that under mixed oligopoly and free market entry, the government’s output subsidies are positive and will not be affected by foreign holdings; however, under complete privatization and free market entry, the government needs to collect a production tax due to excessive market entry. We further demonstrate that the social welfare with privatization will be lower than that without privatization regardless of the shareholding of foreign owners in the free entry equilibrium. This result implies that when the market is completely free and open, it is necessary for state-owned enterprises to enter the market to ease excessive market competition.
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