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<p>This paper explores partial privatization by merger of an inefficient public leader. It uniquely considers the merger with either a foreign or a domestic private follower in a market that includes both. Mergers with either firm can increase both welfare and private profit. When the followers compete to be the merger partner by each offering the public firm a private ownership share, numerical analysis convincingly suggests that the domestic firm always prevails. Its merger provides greater domestic welfare. Moreover, we demonstrate that for nearly all degrees of cost inefficiency, the public firm prefers merger with the domestic firm to unilateral privatization. We argue these findings help explain why mergers of public firms with domestic private firms appear extremely common.</p>

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Privatizing by Merger: Domestic versus Foreign Partners

  • 期刊论文

  • 发表日期：

    2026年5月23日

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  • J. Alejandro Gelves,
  • John S. Heywood

摘要

This paper explores partial privatization by merger of an inefficient public leader. It uniquely considers the merger with either a foreign or a domestic private follower in a market that includes both. Mergers with either firm can increase both welfare and private profit. When the followers compete to be the merger partner by each offering the public firm a private ownership share, numerical analysis convincingly suggests that the domestic firm always prevails. Its merger provides greater domestic welfare. Moreover, we demonstrate that for nearly all degrees of cost inefficiency, the public firm prefers merger with the domestic firm to unilateral privatization. We argue these findings help explain why mergers of public firms with domestic private firms appear extremely common.