Nash bargaining and partial privatization in mixed oligopoly

Neither full nationalization nor full privatization is optimal under moderate conditions in homogenous mixed oligopoly. The result is obtained assuming that a partially-privatized firm maximizes a weighted sum of its profits and the total surplus. If, however, a firm is jointly owned by two different interest parties, the decisions must be made as a result of bargaining between them. This paper shows that the non-optimality result holds even if the privatized firm's strategy is determined by Nash bargaining between the private sector and the public sector. Although partial privatization is optimal for both cases, the optimal degree of partial privatization is different. It is smaller with bargaining than without bargaining.