Ex-ante versus ex-post privatization policies with foreign penetration in free-entry mixed markets

This study investigates the impact of the timing of privatization and liberalization policies on the degree of privatization and number of entering firms in free-entry mixed markets. We formulate two models: ex-post privatization and ex-ante privatization. In the former, the government liberalizes the market and then privatizes the public firm, whereas the order of the policies is reversed in the latter. We find that ex-ante privatization yields a higher (lower) level of privatization and a larger (smaller) equilibrium number of entering private firms when foreign ownership in private firms is high (low). We also show that the optimal level of privatization is increasing (decreasing) in the share of foreign ownership in the ex-ante (ex-post) privatization case. Finally, we find that although both the ex-ante and the ex-post privatization cases yield the same consumer welfare, ex-ante privatization always yields higher social welfare than ex-post privatization.