Essays on strategic trade policies with crossownership and privatization

This dissertation consists of five core essays to examine two issues: (i) the first three essays on the strategic trade policy with a change of ownership structure and decision rule, and (ii) the other two on the impact of a partial privatization on the strategic trade policy and managerial incentive scheme.; The first core essay studies the effect of crossownership between cost asymmetric firms on strategic trade policy. The pattern of optimal trade policy depends on the crossownership structure and the elasticity of the slope of inverse demand. The more efficient firm obtains a higher subsidy and the inefficient firm may be foreclosed. Under symmetric crossownership, the optimal subsidy difference falls short of the cost difference and the amount of shortage decreases as crossownership increases. The importing country charges a higher tariff to the more efficient firm and the 50 per cent rule is valid.; The second core essay investigates the impact of vertical crossownership structure on the optimal export policies under varying assumptions of decision making process and the optimal coalition structure based on optimized profits. Under independent decision making rule, the export subsidy decreases (and changes to tax) as a downstream firm's ownership share increases. Under leading share-holder rule, the leading (minority) share-holding firm is subsidized (generally taxed). Under absolute majority rule, the optimal policy depends on the pattern of coalition and ownership structure. The pre-emptive down-up coalition does not occur. In general, the leading share-holding firm solely has decision making power.; In the third core essay, the crucial role of crossownership structures to decide optimal strategic trade policy is examined under different input pricing schemes with conjectural variation approach. With horizontal crossownership, the optimal strategic trade policy under a discriminatory pricing scheme is always an export tax. Under a uniform pricing scheme, however, it is subsidy (tax) with low (high) crossownership. As crossownership increases, subsidy and profit decrease but welfare increases. The uniform pricing scheme yields a higher optimal crossownership ratio. With vertical crossownership, the optimal export policy is a tax (subsidy) under a discriminatory (uniform) pricing scheme. The CEOs and policy makers prefer vertical crossownership to horizontal one.; The fourth core essay investigates the impact of strategic incentive scheme in mixed duopoly with partial privatization and cost asymmetry. The principals always induce the managers to deviate from profit maximization. The absolute and relative extents of deviation depend upon the degree of partial privatization and cost difference. Incentive scheme generates a larger output and consumer surplus regardless of cost asymmetry. Full privatization is not necessarily welfare improving, but a small initial partial privatization is always welfare improving. Incentive scheme yields a lower government's ownership share than the case without any incentive scheme.; The fifth core essay explores the strategic trade policy in a quantity-setting duopoly (Cournot and Stackelberg) involving a partially privatized public firm. The import tariff increases as partial privatization proceeds. In a private (mixed) duopoly, the optimal tariff under Cournot is higher than (equal to) that under Stackelberg. Full privatization under free trade reduces welfare; however, privatization in the presence of optimal tariff may increase welfare if the cost difference is sufficiently large. In any case, there exists a partial privatization equilibrium and the government's ownership share decreases as cost difference increases. With optimal tariff and partial privatization, maximum welfare levels under Stackelberg and Cournot are the same.