Public Stackelberg leadership in a mixed oligopoly with foreign firms

Transcription

1 ublic Stcelberg ledership i ixed oligopoly with oreig irs Keeth Fjell Foudtio or Reserch i Ecooics d Busiess Adiistrtio d Norwegi School o Ecooics d Busiess Adiistrtio Helleveie, 55 Berge, Norwy hoe: Fx: Eil: eeth.jell@s.o Joh S. Heywood Deprtet o Ecooics Uiversity o Wiscosi - Milwuee d Deprtet o Coerce Uiversity o Birigh We re grteul to M. Bhi, W.L. Holh, J.H. eoples, D. l, seir prticipts t the Norwegi School o Ecooics d Busiess Adiistrtio d two reerees or vluble coets.

2 Abstrct This is the irst pper to cosider ixed oligopoly i which public Stcelberg leder copetes with both doestic d oreig privte irs. The welre xiizig leder is show to lwys produce less th uder previous Courot cojectures. Itroducig ledership lso lters previous public pricig rules resultig i prices tht y be either greter th or less th rgil cost depedig o the reltive uber o doestic irs. Furtherore, etry o oreig ir will icrese welre oly whe the reltive uber o doestic irs is sll, but tht shre is show to be lrger th hs bee idicted without ledership. Ulie previous odels, the iluece o public proit o oreig cuisitio is biguous d is relted to the reltive uber o doestic irs. Filly, the coseueces o privtiztio re show, or the irst tie, to deped o the reltive uber o doestic irs. JEL: D, L, L Keywords: Stcelberg ledership, ixed oligopoly, oreig cuisitio, privtiztio

3 . Itroductio Erlier literture exies ixed oligopoly odels i doestic cotext (see, e.g., Merill d Scheider, 966; Creer, Mrchd, d Thisse, 989 d 99; DeFrj d Delboo, 989; Hrris d Wies, 98; Sertel, 988; Fersht, 99; DeFrj d Delboo, 99) while soe ore recet literture icludes oreig privte irs (Fjell d l, 996; d l d White, 998). The itroductio o oreig irs ects outcoes becuse the welre xiizig public ir igores the producer surplus o the oreig irs. For Courot copetitio, the itroductio results i lower price d dieret lloctio o productio (Fjell d l, 996). However, the eects o public Stcelberg ledership, previously explored i doestic oligopoly cotext (DeFrj d Delboo, 989), hve ot bee exied i the presece o oreig privte irs. This pper is otivted by the belie tht Stcelberg ledership best describes certi criticl idustries. Idustries such s telecouictios, electricity d, icresigly, the postl sector, re doited by orer public oopolies with irst over dvtge. These idustries ore closely reseble Stcelberg ledership th Courot oligopoly d ote it the descriptio o ixed oligopolies with oreig irs. Thus, Teleor, the trditiol stte oopoly i the Norwegi telecouictios idustry, hs ced icresed copetitio sice the ret ws ully opeed i Jury 998. Soe o this copetitio is oreig owed icludig MCI ro the Uited Sttes d irs origilly bsed i Frce, the Netherlds, Swede d Ireld og others. Copetitors hve cptured ore th urter o the ret i soe products (Norwegi ost d Telecouictios Authority, 999). Eve ter prtil privtiztio i, Teleor reis eighty percet owed by the stte d retis socil obligtio to provide uiversl service (Teleor Aul Report, ). A siilr cse is provided by the postl services o y coutries. Agi, usig Norwy s exple, the postl service retis oopoly oly o ddressed letters d light prcels, but is reuired to provide brod rge o services through " eiciet tiowide service or the distributio o il i Norwy t resoble prices d oerig good ulity o service" (Licese or Norwy ost). The postl service is Ideed, there re curretly ore th doze irs copetig gist Teleor i vrious product lies i Norwy (Norwegi ost d Telecouictios Authority, 6. August, ).

4 ully stte owed corportio copetig with doestic d oreig irs i y rets. The rge o products or which the postl service hs regulted oopoly ws recetly reduced s coseuece o Norwy s coitet to ipleet the EU ostl Services Directive o 5 Deceber 997. Further reductios re ticipted s the EU hs sigled itetios to urther ope the ret. Noetheless, the origil oopoly o Norwy ost c be expected to reti sigiict irst over dvtge. Eve ore drticlly, the previous postl oopoly i Swede hs bee ully eliited sice Jury 99 (Swedish Ntiol ost d Teleco Agecy) d i New Zeld sice April 998. Yet, despite this sttutory chge, the public postl irs reti doit positios. Eve i coutries without such drtic chge, the geerl picture is siilr. The Austrli ost, or istce, hs expesive couity service obligtio yet ces icresig pressure ro copetitive tederig (Cstro d Mddoc, 997). Thus, y postl idustries hve cobitio o public owership d service obligtios, historicl oopoly positio d icresig cop etitio. I this pper we explore the euilibriu eects o Stcelberg ledership by public ir, discuss the eects o ope ret policy llowig oreig d doestic irs to eter, d the eects o oreig cuisitio o doestic irs. We explicitly odel the coseueces o privtiztio with the ovel, but relistic, ssuptio tht the public Stcelberg leder retis its irst over dvtge whe privtized. The pper is orgized i series o short sectios. Sectio describes the odel d its euilibriu solutio. Sectio copres the euilibriu with previous odels. Sectio idetiies uiue spects o the pricig rule or the public leder. Sectio 5 exies the coseueces o ope ret with etry by either oreig or doestic irs. Sectio 6 cosiders the oreig cuisitio o doestic ir, d sectio 7 explores the coseueces o privtiztio. Sectio 8 cocludes.. Model d euilibriu Cosider idustry where oe stte-owed public ir is Stcelberg leder, wheres doestic privte irs d oreig privte irs re Courot ollowers tig other irs output s give. The Stcelberg leder oves irst, ticiptig the rectio o the ollowers. All ( ) irs produce hoogeeous Norwegi ost d Telecouictios Authority,, (

5 coodity d hve ideticl techologies. Let the cost uctio o ir be ( ) there is ixed cost d icresig rgil cost ( ), where > is costt. C, tht is, Let be the output o the public ir, d i be the output o the doestic privte ir i ( i,..., ) d j be the output o the oreig privte ir j ( j,..., ). For trctbility, we ssue tht the iverse d ded is lier d is give by i j. Coseuetly, the cosuer surplus is i j d give by CS i j i j d the output o the other irs. i ( ) ( ) j j ( ) ( ) j i d. Ech privte ir's objective is to xiize its ow proit give deotes the proit o oreig privte ir j. i d deotes the proit o doestic privte ir i d The objective o the public ir is to xiize (doestic) welre, W, which is deied s the su o cosuer surplus d totl proits o the doestic irs: () d W i j i j i d i where ( ) ( ) deotes the proit o the public ir. Sice we ssue tht the proit o the oreig irs is trserred out o the public ir's hoe coutry, W does ot iclude j Solvig the odel yields the ollowig euilibriu: j. () () () d i j [( )( ) ] ( ) ( ) [ ] [ ] ( ) ( ) ( ) ( ) [ ] ( ) ( )( ) ( ) ( ) [ ] [ ] ( ) 5

6 6 (5) ( )( ) ( ) { } j d i (6) ( )( ) ( ) { } (7) ( ) { } CS (8) ( ) ( ) ( ) ) ( W Note tht i (i.e. i the bsece o oreig irs), we get bc the results o DeFrj d Delboo (989).. Copriso with previous odels A copriso o the Stcelberg euilibriu i () (8) to oe i which ll ollowers re doestic (DeFrj d Delboo, 989), shows tht the presece o oreig privte irs ivolves lower price d dieret lloctio o productio (superscript SD deotes Stcelberg euilibriu with oly doestic irs d the euilibriu vlues or this cse re i Appedix A): (9) ( ) ( ) { } < SD () ( ) { } < SD i d i Fro (9) d () we c coclude tht the presece o oreig irs results i higher output by the public leder, > SD. This ollows s the cobitio o lower price d reduced ollower output c oly hold i the public leder's output hs icresed. A copriso o the Stcelberg cse with oreig irs to the Courot cse with oreig irs (Fjell d l 996) shows tht i the Stcelberg cse the public ir's output is lower, the privte irs' output is

7 7 higher, d price is higher (superscript CF deotes Courot euilibriu i the presece o oreig privte irs d the euilibriu vlues re i Appedix A): () ( ) ( ) { } ( ) < CF () ( ) ( ) { } ( ) > CF d i () ( ) { } ( ) > CF The ituitio behid this is tht s Stcelberg leder, the public ir is wre o the rectio uctios o the privte irs d uses this to ove soe o its productio to the privte irs (DeFrj d Delboo, 989). As expected, welre is higher uder Stcelberg ledership d the proo is i Appedix A. ropositio. As Stcelberg leder, the public ir will lwys produce less th s Courot copetitor whe xiizig welre i ixed oligopoly whether oreig privte irs re preset or ot. The proo o propositio. is estblished by (), d by DeFrj d Delboo (989) who show tht public output is lso less or the Stcelberg leder i the bsece o oreig privte irs. This result is cotrry to tht or proit xiizig Stcelberg leder, which orlly produces output greter th i it were Courot copetitor. The ituitio is tht s Stcelberg leder, the public ir recogizes the iverse reltioship betwee ow output d tht o the Courot ollowers. Hece, it xiizes welre i prt by reducig its output reltive to the public Courot ir, relizig tht soe o the reductio will isted be produced by the privte irs t lower rgil cost. Icresig rgil cost is thus criticl to this result.

8 . ricig rules or the Stcelberg leder Beto d Ms-Colell (98) chrcterize duopoly coditios uder which rgil cost pricig is the best siple rule or welre xiizig ir. DeFrj d Delboo (989) show tht i the cotext o ixed Courot oligopoly, the public ir does ideed choose output such tht its rgil cost euls price. However, they proceed to show tht public Stcelberg leder will choose lower output or which rgil cost is less th price. Extedig the Courot lysis to iclude oreig privte irs, Fjell d l (996) id tht the public Courot ir chooses output such tht its rgil cost exceeds price i oreig irs re preset. We id tht i the presece o oreig privte irs, public Stcelberg leder chooses output such tht its rgil cost y be either greter th or less th price. ropositio. The reltioship betwee rgil cost o the leder d price is such tht: c > s ( ) < d c s ( ) d c < s > ( ). Thus, the rgil cost o the public Stcelberg leder is greter (sller) th the ret price i the uber o doestic irs is sll (lrge) reltive to the uber o oreig irs. The proo o propositio. ollows ro coprig the ret price (e. ) d the rgil cost o the public ir, (ro e. ). This result, ew to the literture, shows tht oly whe ( ), will it be optil or the public leder to price t rgil cost. The reltioship betwee public output, rgil cost, price d dditiol oreig privte irs is illustrted i igure. This igure cptures the essece o the propositio d shows the reltioship betwee the reltive uber o doestic irs d the output o the public leder. The leder produces the ost whe () which is ssocited with price eul to rgil cost. The ituitio behid the propositio is s ollows. To xiize welre, the public ir chooses output such tht the rgil (icrese i) cosuer surplus euls the rgil (decrese i) totl doestic proits. Whe the shre o doestic irs is reltively lrge (let hd side o igure ), icreses i the shre o oreig irs results i icresig shre o proit trserred out o the coutry. The public leder respods by icresig output which dds to cosuer surplus ore th it reduces doestic proit. Whe the shre o doestic irs is reltively sll (right hd side o igure ), icreses i the shre o oreig 8

9 irs d the icresig shre o proit trserred out o the coutry elicits dieret respose. The public leder reduces output which icreses doestic proit ore th it reduces cosuer surplus. 5. Eects o ope ret policy The ext propositios cosider the eects o ope ret policy tht llows oreig d doestic irs to eter ixed oligopoly. This relects the curret sttus o y o the previously regulted oopolies i Wester Europe. ropositio 5. The public ir's output decreses (icreses) d welre icreses (decreses) with the etry o oreig privte ir i the reltive uber o doestic irs is sll (lrge). These results re logous to the cse o the public Courot copetitor d ollow ro dieretitio o d W with respect to. For public output, the eect o oreig etry is: () ( )( ) ( ) ( ) [ ] { [ ] ( ) } This derivtive c be show to be egtive oly i ( ) <, tht is i the reltive uber o doestic privte irs is sll. The derivtive is positive whe the ieulity reverses, tht is, whe the reltive uber o doestic privte irs is lrge, public output will icrese with dditiol oreig privte ir. The welre eects re siilrly oud: (5) W ( )( ) ( ) ( ) [ ] { [ ] ( ) } Thus, the etry o oreig privte ir will icrese welre oly i ( ) <, the se coditio or public output to decrese. The ituitio behid ropositio 5. is s ollows. Recll tht or give rivl output, the public ir produces less i the output coes ro doestic irs. The dditio o oreig ir icreses cosuer surplus d decreses doestic proit. Whe the reltive uber o doestic irs is lrge d the public 9

10 ir's rgil cost is low reltive to price, it is optil or the public ir to icrese its output. The icrese i cosuer surplus outweighs the decrese i doestic proit. Whe the rtio o doestic to oreig privte irs euls ( ), public rgil cost euls ret price d this represets turig poit or the public ir's strtegy. Beyod this poit, urther oreig etry will ow be ccoodted by reductios i public output s the reductio i cosuer surplus is outweighed by the icrese i doestic proit. However, i spite o the reductio i public output, public rgil cost will exceed ret price (see igure ). Despite the siilrities with the cse o Courot copetitio, the results re ot ideticl. Corollry 5. The rge or which public output decreses d welre icreses with the etry o oreig privte ir, is lrger i the Stcelberg cse th i the cse o public Courot copetitor. Copred to the Courot oligopoly, welre will icrese over greter rge o doestic irs whe the public ir is Stcelberg leder, ceteris pribus. The euivlet Courot coditio or icrese i ( ) ( ) welre ollowig oreig privte etry is < (Fjell d l, 996). It c redily be veriied tht this ieulity holds or sller rge o th is true or the Stcelberg cse. A iplictio o this corollry is tht or speciic rge i the uber o privte irs, oreig etry will icrese welre i the Stcelberg cse but decrese welre i the Courot cse. This dierece eerges becuse the leder is better ble to ccoodte etry by lterig its ow output i shio tht lters ret output (this becuse it ows the rectio uctios o the ollowers). Thus, greter extet o etry c be ccoodted i shio tht icreses welre. ropositio 5. Regrdless o d, the public ir's output decreses d welre icreses with the etry o doestic privte ir. The proo ollows ro tig the derivtives o public output d welre with respect to.

11 (6) ( ) { ( ) } { [ ( ) ] 5 ( ) [ ] } ( ) ( ) [ ] < W ( )( ) (7) ( ) ( ) [ ] { ( ) } Etry o doestic ir lwys results i ccoodtio i output by the public leder s it relizes tht the ew etrt c produce soe o its output t lower rgil cost. The icresed productio t lower rgil cost icreses welre provided the ixed cost is suicietly low. 6. Eects o oreig cuisitios o doestic irs The prctice i y developig coutries o big or liitig oreig owership o doestic irs hs bee relxed i recet yers ig the issue o oreig cuisitios ore relevt. A useul bechr or lyzig the eects o oreig cuisitio is oligopoly without public ir. I this cse, the purchse o doestic privte ir by oreig tiols does ot chge idividul outputs sice ll privte irs hve ideticl objectives (o proit xiiztio) d techologies. As result, totl output, ret price, proits o the privte irs, d cosuer surplus do ot chge. Welre, however, decreses, s the oreig privte ir is ssued to trser its proit out o the hoe coutry. Thus, i the bsece o public ir, oreig cuisitio o doestic irs reduces totl welre lthough it does ot ect either cosuer surplus or proits o other privte irs. This bechr c be copred to the cse o public Courot ir. I this cse, output o the public ir icreses, cosuer surplus icreses, welre decreses d proit o the public ir decreses ollowig oreig cuisitio (Fjell d l, 996). Although the presece o public Stcelberg leder chges the lysis with public proit depedig o the reltive uber o doestic irs, prts o the lysis rei logous to the public Courot cse. This result depeds criticlly o the ssuptio o icresig rgil cost.

12 ropositio 6. Regrdless o d, i doestic ir is cuired by oreig tiols, the output o the public ir icreses, the outputs o ll privte irs decrese, cosuer surplus icreses d welre icreses. 5 These results re siilr to those ro the Courot cse (Fjell d l, 996) d the proo ollows ro coprig the euilibriu outcoes beore d ter cuisitio. These results re i Appedix B. ropositio 6. d Corollry 6. surize the results with respect to public ir proit d re uiue to the Stcelberg cse. ropositio 6. I doestic ir is cuired by oreig tiols, proit o the public ir will decrese whe <. The proo o propositio 6. ollows by copriso o the euilibriu outcoes beore d ter the cuisitio. A oreig cuisitio iplies tht icreses by oe d siulteously decreses by oe. Idetiyig the euilibriu vlue ter oreig cuisitio by superscript A, we get the ollowig euilibriu chge i public proit: (8) A ( )( ) D ( ) ( ) [ ] { ( ) } B where B is positive d D y be positive or egtive, d both re i Appedix B. Eutio (8) c be show to be egtive wheever <. I cotrst to whe the public ir is Courot copetitor d its proit lwys decreses whe oreig tiols cuire doestic privte ir, public proit c ctully icrese whe the public ir is Stcelberg leder. 5 I ixed cost,, is suicietly high, welre y icrese s the ixed cost is ow beig pid by oreig ir.

13 Corollry 6. I doestic ir is cuired by oreig tiols, the proit o the public leder c icrese. A ecessry, but ot suiciet, coditio is >. A uericl illustrtio serves s proo. I, 8, d, oreig cuisitio icreses leder proit 85 5 >. However,, or A dditiol cuisitio, i.e. whe, 7, d, leder proit is reduced < A The public ir lwys chooses output such tht the rgil (icrese i) cosuer surplus is eul to the rgil (decrese i) totl doestic proits. Whe the reltive uber o doestic irs is lrge, the public leder teds to liit its output below its idividul proit xiu to shield proits o doestic ollowers. A oreig cuisitio results i icresed leder output (d leder proit) s the icrese i cosuer surplus outweighs the decrese i doestic proits. It is this possibility tht is uiue to the curret odel. Whe the reltive uber o doestic irs is sll, the public ir produces beyod its ow proit xiizig output, d oreig cuisitio cuses it to produce eve ore (which urther reduces its ow proit) s the icrese i cosuer surplus cotiues to outweigh the decrese i doestic proits. 7. rivtiztio As discussed i the itroductio, y public oopolies i Europe hve bee orced to copete with both doestic d oreig copetitors ollowig prtil or ull deregultio. rllel, or soeties subseuet, to this, there hs bee privtiztio o the public icubet. For exple, i the Netherlds, the TNT ost Group 6 hs oly.9% stte owership, opertes s privte eterprise, 7 d hs bee subject to ore rpid deregultio o its oopoly th reuired by EU regultio (OTA Aul Report, ). Siilrly, the Swedish public postl service ws subject to ull copetitio i 99 d orgized s stte-owed liited libility copy ow s Swede ost i 99. Although Swede ost still hs uiversl service obligtio, it deteries the level o service d opertes o the whole s privte or-proit copy 6 Holdig copy o the TT ost.

14 (Swedish Ntiol ost d Teleco Agecy). st literture ssues tht privtiztio results i the public Stcelberg leder becoig siple privte Courot copetitor (DeFrj d Delboo 989: pp. 7). Yet, the public icubet ote retis irst over dvtge d the eect o privtiztio ight better be chrcterized s cretig privte Stcelberg leder. Certily the icubet postl copies i both the Netherlds d Swede reti doit positios i their rets. Exiig the privtiztio o Stcelberg leder is prticulrly iterestig i the presece o oreig irs. ropositio 7. rivtiztio o public Stcelberg leder reduces leder output, icreses ollower output, icreses prices, d icreses ollower proit whe <. Regrdless o d, privtiztio lwys icreses proit o the leder d decreses welre. The copriso o utity o the leder coes ro subtrctig the euilibriu output o proit xiizig privtized leder (superscript ) ro tht o welre xiizig public leder: ( 5 ) (9) ( ) ( [ ( ) ( ) ] [ ( ) ] ) It c be coired tht suiciet, but ot ecessry, coditio or public leder output to exceed privte leder output, is tht <. I other words, i the uber o oreig ollowers exceeds tht o doestic ollowers, output o the leder declies ollowig privtiztio. For give out o ollower output, the public ir produces ore s the shre ro oreig irs icreses becuse oreig irs' proits do ot eter the welre uctio. Hece, reltively lrge uber o oreig ollowers iduces the public leder to produce beyod its proit xiizig output, d thus privtiztio reduces output. Appedix C presets the euilibriu solutio to the cse o the privtized Stcelberg leder, d copriso with eutios () - (8) costitutes the reider o the proo o propositio TG ost Group, Septeber ( )

15 Corollry 7. With reltively lrge uber o doestic irs, the privtiztio o public Stcelberg leder c icrese leder output, decrese ollower output, decrese prices d decrese ollower proit. A ecessry, but ot suiciet, coditio or this corollry is >. A uericl illustrtio serves s proo. I, 6, d, privtiztio icreses leder output >. I ll such 95 cses i which the public Stcelberg leder produces less th the privte leder, it c be redily coired tht ech o the results sesitive to d i propositio 7. re reversed. By wy o illustrtio, i 5 rther th the i results o propositio 7. retur d utity o the leder, i prticulr, decreses 6 6 < As the propositio d corollry e cler, the iterests o the ollowers deped drticlly upo their copositio. Whe the ollowers re disproportiotely oreig, the propositio shows tht their proit will icrese with privtiztio. Whe the ollowers re disproportiotely doestic, the corollry idictes their proit c ll with privtiztio. Thus, eve though oreig d doestic ollower irs hve ideticl iterests, oe would ticipte their politicl lobbyig o the issue o privtiztio to vry with the reltive uber o doestic irs Sury d coclusios I this pper we cosider ixed oligopoly odel, i which stte-owed public ir copetes s Stcelberg leder with doestic d oreig privte irs. We hve chrcterized the euilibriu d copred it to those ro previous odels. We id tht regrdless o the ix o oreig d doestic irs, the public leder produces less th uder Courot cojecture. A vriety o results re show or the irst tie to deped criticlly upo the reltive uber o doestic irs. First, we id tht the public ir produces where rgil cost is greter (less) th price i the uber o doestic irs is reltively sll (lrge). Secod, give ope ret, etry o oreig ir icreses welre oly whe the shre o doestic irs is sll, but tht shre is show to be lrger th 5

16 hs bee idicted i odels without ledership. Third, oreig cuisitios c icrese public proit, but oly whe the shre o doestic irs is lrge. Fourth, privtiztio c decrese ollower proit, but lso oly whe the shre o doestic irs is lrge. The possibility tht oreig cuisitios will icrese public proit d tht privtiztio will decrese ollower proit is uiue to the Stcelberg ixed oligopoly. Icresig privtiztio d ope-door policies i Europe d y developig coutries, es urther reserch i this re desirble. I this pper, s i ost tht preceded it, the lysis hs bee bsed o prtil euilibriu. Recogizig the iportce o eedbc loops ight lter soe o the results. For istce, oreig cuisitio o doestic ir directly reduces welre but it y icrese oreig ded or doestic products d thus idirectly icrese doestic welre i geerl euilibriu lysis. While beyod the scope o this rticle, such iuiry ight be extreely ruitul. 8 Note tht ter privtiztio the leder is idieret to whether ollowers re oreig or doestic. As coseuece, the cuisitio o doestic ir by oreig ir will ot chge the behvior o the privte leder. 6

17 c c < c > > ( ) ( ) < ( ) Figure. ublic output versus dditiol oreig privte irs. 7

18 8 Appedix A Solvig or the euilibriu i stdrd shio, we begi by derivig the rectio uctio o the Courot ollowers. The expded objective uctio o represettive doestic privte ir,, is: (A) ( ) d i d j d j i d d Mxiizig the ir's proit with respect to d, tig other outputs s give, d eutig to zero, we obti: (A) ( ) i d j d j i d Due to syetry, the optil outputs re ideticl or ll privte irs. Eutig ll privte outputs i (A) to d solvig, we get the rectio uctio o represettive privte ir s uctio o public output: 9 (A) where i d j Expdig () usig (A) we obti the public ir's objective uctio i ters o ow output: (A) ( ) ( ) W Mxiizig (A) with respect yields the euilibriu output or the public ir; eutio () i the pper. The FOC d SOC or the public ir re: (A5) ( )( ) ( )( ) ( ) { } ( ) W 9 Cocvity is stisied by ( ) d

19 (A6) W { [ ( )( ) ] [ ( ) ] } ( ) < cocve The euilibriu whe the public ir is Stcelberg leder d ll M ( ) owed is (DeFrj d Delboo, 989): (A7) [ ( ) M] ( ) M ( M ) SD privte irs re doesticlly (A8) (A9) (A) ( M ) ( ) M ( M ) SD ( )( M ) ( ) M ( M ) SD [ ( M ) ( ) M ] ( ) M ( M ) SD (A) SD ( M ) ( ) M ( M ) (A) ( ) M M( M ) ( ) M ( M ) ( M ) W SD The euilibriu uder Courot-Nsh cojectures with oreig privte irs is (Fjell d l, 996): (A) CF ( ) ( ) (A) CF ( ) (A5) (A6) CF FC ( ) ( ) ( ) { ( ) } FC ( )( ) (A7) { ( ) } (A8) [( ) ] ( ) ( ) { ( ) } W FC ( ) 9

20 roo tht welre is higher uder Stcelberg ledership th uder Courot copetitio: (A9) ( ) ( ) { } ( ) { } W W FC

21 Appedix B Eects o Foreig Acuisitio A oreig cuisitio iplies tht icreses by oe d siulteously decreses by oe. Idetiyig the euilibriu vlue ter oreig cuisitio by superscript A, d subtrctig ro iitil euilibriu vlues, we get: (B) ( )( ) ( ) { } > B A (B) ( ) { } ( ) { } < B A (B) ( )( )( ) ( ) { } > B C CS CS A (B) ( )( ) ( ) { } < B W W A provided is suicietly low. where B is positive d eul to: ( ) B d C is positive d eul to: (B5) Reerrig to eutio (8), D y be positive or egtive. A suiciet, but ot ecessry, coditio or D to be positive (d eutio (8) to be egtive) is < :

22 Appedix C Eects o rivtiztio Usig the rectio uctio o ollower derived i Appedix A, d usig siple proit xiiztio s the objective uctio o the privtized leder, we derive the ollowig euilibriu solutio (idetiied by superscript ): (C) ( ) o (C) ( ) ( ) (C) ( ) ( ) (C) ( ) ( ) o (C5) ( )( ) ( ) (C6) ( ) ) ( E W where E is positive d eul to: Subtrctig the results i (C)-(C6) ro the correspodig results or the public Stcelberg euilibriu ()- (8), we get the eect o privtiztio o the public Stcelberg leder: (C7) ( ) ( ) ( ) ( ) 5 (C8) ( ) ( ) ( ) ( )( ) 5 Oittig direct copriso o cosuer surplus s this ollows idirectly ro copriso o price.

23 (C9) ( )( ) ( ) ( ) ( )( ) 5 (C) ( ) ( ) ( ) 5 o (C) ( )( ) ( ) ( ) ( )( ) { } 5 F where F is positive d eul to: F (C) ( ) ( ) ( ) ( )( ) 5 W W o

24 Reereces Beto,., d A. Ms-Colell, 98, The rgil cost pricig s regultio echis i ixed rets, I The erorce o ublic Eterprises, ed. M. Mrchd,. estieu, d H. Tules (Asterd: North-Holld). Cstro, M. d R. Mddoc, 997, The uiversl service obligtio or post: Soe Austrli clcultios, i eds. M. Crew d. Kleidorer, Mgig Chge i the ostl d Delivery Idustries, Kluwer Acdeic ress: Norwell Msschusetts. Creer, H., M. Mrchd d J. Thisse, 989, The public ir s istruet or regultig oligopolistic ret, Oxord Ecooic pers,, 8-. Creer, H., M. Mrchd d J. Thisse, 99, Mixed oligopoly with dieretited products, Itertiol Jourl o Idustril Orgiztio, 9, -5. DeFrj, G., d F. Delboo, 989, Altertive strtegies o public eterprise i oligopoly, Oxord Ecooic pers,, -. DeFrj, G., d F. Delboo, 99, Ge theoretic odels o ixed oligopoly, Jourl o Ecooic Surveys,, -7. Fersht, C., 99, The iterdepedece betwee owership sttus d ret structure: the cse o privtiztio, Ecooic, 57, 9-8. Fjell, K. d l, D., 996, A ixed oligopoly i the presece o oreig privte irs, Cdi Jourl o Ecooics, 9, 77-. Hrris, R.G., d E.G. Wies, 98, Goveret eterprise: A istruet or iterl regultio o idustry, Cdi Jourl o Ecooics,, 5-. Merrill, W.C. d N. Scheider, 966, Goveret irs i oligopoly idustries: short ru lysis, Qurterly Jourl o Ecooics, 8, -. Norwegi ost d Telecouictios Authority, 999, "The Norwegi Telecouictios Mret Sttistics d Alysis 999" ( 5.htl) OTA Aul Report,, ( l, Debshis, d Mr D. White, 998, Mixed oligopoly, privtiztio, d strtegic trde policy, Souther Ecooic Jourl, 65 (), 6-8. Sertel, M., 988, Regultio by prticiptio, Jourl o Ecooics, 8, -. Teleor Aul Report,, (htttp://