Partial Privatization in Upstream Mixed Oligopoly with Free Entry

Abstract

Utilizing the model with upstream mixed oligopoly in which there are one public and n private wholesalers in the upstream market, and m private retailers in the downstream market, this paper examines the optimal privatization policy of the upstream public wholesaler. It shows that: Firstly, in an environment with mixed oligopoly in the wholesale market and many private firms in the retail market, the public wholesaler should be partially privatized in the short run. Besides, the more private firms are in wholesalers or retailers market, the higher degree of privatization the government should take. Secondly, the public wholesaler should be partially privatized in the long run; moreover, the more private retailers firms are in the market, the less degree of privatization the government should take. Thirdly, the difference of optimal degree of privatization between long run and short run is increasing in the market scale and decreasing in the entry cost. Hence, the optimal degree of privatization in long run is smaller than in short run, when the market scale is restricted and the entry cost is high.