International Competition Between Public or Mixed Enterprises

We develop a model in which two firms from different countries compete on each other domestic market. Each firms is jointly owned by the residents and the government of its country. The extent of the government's stake in the public enterprise is endogenous and it determines the weight given the domestic consumers' surplus inithe firm's payoff function. We show that the choice of each government's stake depends on a trade-off between allocative efficiency on the domestic market and profitability of foreign markets. We also highlight the fact that the government's stake in on country has an impact of firms' behavior in both countries.