On Privatization of Public Firms: A Partly Privatizing Approach

Abstract

This paper is the first to investigate an alternative approach of privatization: privatizing only a subsidiary of a public firm. In a mixed duopoly model, instead of assuming that a public firm is privatized in its entirety by selling a portion of the firm's stocks to private investors (partial privatization), we consider only a subsidiary of the public firm is privatized (subsidiary privatization). We find that subsidiary privatization not only improves social welfare comparing to no privatization, but also weakly dominates the partial privatization widely discussed in existing literature.