An analysis of policy harmonization on privatization and trade liberalization

- We analyze privatization and trade policies in a mixed oligopoly model.
- The equivalence of privatization and trade liberalization could hold.
- Both the privatization and trade policies can obtain the win-win situation.
- By adopting a low degree of privatization block trade may increase domestic welfare.

This paper investigates optimal privatization and trade policies in an international mixed oligopoly model. When both policies are available, the optimal policy combination is partial privatization and a positive tariff. Moreover, if one of the two policies is not available, the optimal trade liberalization and optimal privatization would be equivalent in welfare as long as the demand is linear. Implementing privatization and/or trade policies obtains the win-win situation for two countries. Besides, the effect of full privatization on welfare is ambiguous and depends crucially on the difference between firms' marginal cost. Lastly, by adopting a low degree of privatization block trade may increase domestic welfare.