Abstract

This paper studies the role of privatization and subsidization policies as trade strategies in a single multinational market where private and public firms of different nationalities interact. It finds out when a country subsidizes its industry the rival country would have the incentive to retaliate by adopting a subsidization regime to prevent a free riders’ situation from happening when it moves to liberalize the market. However this step does not eliminate the free rider problem governments are facing in this market when they privatize their public firms unilaterally. 

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