Abstract:
This paper investigates the effects of cross-ownership on optimal privatization, and vice-versa, in mixed
duopoly. It shows that cross-ownership is profitable to the private firm only if the level of privatization
of the public firm is sufficiently high. In equilibrium, cross-ownership does not take place even if there is
partial privatization. However, the possibility of cross-ownership significantly limits the socially
optimal level of privatization in most of the situations. Moreover, it demonstrates that full
nationalization is socially optimal, in case of sufficiently convex identical cost functions and
homogeneous goods. These results have strong implications to both divestment and competition policies.
