3. Conclusion
Our results shed new light on the role of privatization in the location choice of vertically linked firms engaged in spatial competition. We show that, when a publicly owned firm competes with a private firm in a vertically related industry where neither firm can produce all varieties demanded, firm locations are not socially optimal as long as the demand for all product varieties are not identical. The private firm moves toward, while the public firm moves away from, the socially optimal location if the degree of privatization rises when the fraction of consumers wanting to buy the commonly produced good falls short of the fraction of those wanting to buy one of the goods produced exclusively by either firm. The public firm will move toward, while the private firm moves away from, the socially optimal location if the degree of privatization rises when the fraction of consumers wanting to buy the commonly produced good exceeds the fraction of those wanting to buy one of the goods produced exclusively by either firm. A rise in privatization above (below) a critical level will induce the public and private firms to come close (drift apart). We anticipate that our findings are likely to have important implications for firms' choice of entry mode as well.8 As such, some natural extensions of this paper may involve imposing trade barriers à la Oladi (2004, 2005) and/or allowing asymmetric costs à la Mukherjee and Sinha (2014).
