The Optimal Government Shareholding Strategy and the Cost Structure

Abstract

This paper analyzes government's optimal shareholding strategy within the framework of the mixed oligopoly. It is found that: (1) When both public and domestic firms have the same cost coefficient, the government's best policy is to adopt the full mixed oligopoly. (2) When the cost coefficient of the public firm is lower than a threshold value, the government should opt for a full mixed-oligopoly policy. However, when the public firm's cost coefficient is higher than the threshold value, the government should privatize the public firm completely and exit the market. The single mixed oligopoly is just an alternative proposal when it fails to transform all of the private firms into mixed ownership enterprises.