Upstream privatization in mixed markets with retailer's efforts

Abstract

Through introducing the retailer efforts and product differentiation into a mixed oligopoly framework, this paper elucidates the welfare implication of upstream privatization in vertically-related markets. The results show that the optimal policy toward the semi-public firm is full nationalization in a more differentiated product market; as the product tends to be homogenized, however, full privatization can be socially optimal. In particular, compared with the horizontal mixed oligopoly literature, it points out some different mechanisms: in the presence of the rent-extracting effect and the horizontal market-competition effect, the impact of privatizing the upstream semi-public firm on welfare mainly depends on their collective effects.