Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 545: Privatization and Foreign Competition

Lars Persson () and Pehr-Johan Norbäck ()
Additional contact information
Lars Persson: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Pehr-Johan Norbäck: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

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

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

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