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Research Institute of Industrial Economics (IFN) Working Paper Series

No 545:
Privatization and Foreign Competition

Lars Persson () and Pehr-Johan Norbäck ()

Abstract: This paper determines the equilibrium market structure in a mixed international oligopoly, where the state assets are sold at an auction. The model suggests that low greenfield costs and low trade costs induce foreign acquisitions. The intuition is that domestic firms can then not prevent foreign firms from becoming strong competitors and thus, their willingness to pay for the state assets is low. We also find that profit shifting from domestic to foreign firms generated by National Treatments clauses is partly paid for by the foreign investor in the bidding competition over the state assets. 

Keywords: Privatization; Failing firms; FDI; Acquisitions; National treatment; (follow links to similar papers)

JEL-Codes: F23; L13; L33; (follow links to similar papers)

38 pages, September 4, 2001, Revised February 2, 2001

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This paper is published as:
Persson, Lars and Pehr-Johan Norbäck, (2004), 'Privatization and Foreign Competition', Journal of International Economics, Vol. 62, No. 2, pages 409-416



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