Working Paper Series,
Research Institute of Industrial Economics

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

JEL-codes: F23; L13; L33

Language: English

38 pages, First version: September 4, 2001. Revised: February 2, 2001.

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Published as

Lars Persson and Pehr-Johan Norbäck, (2004), 'Privatization and Foreign Competition', Journal of International Economics, vol 62, no 2, pages 409-416

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