J Econ (2010) 101:231–246 DOI 10.1007/s00712-010-0156-x Optimal privatization in a mixed duopoly with consistent conjectures John S. Heywood · Guangliang Ye Received: 24 February 2010 / Accepted: 13 July 2010 / Published online: 30 July 2010 © Springer-Verlag 2010 Abstract We show that partially privatizing a public firm alters underlying conjec- tures, in turn, changing the optimal degree of privatization. The consistent conjectures equilibrium (CCE) generates substantially greater optimal privatization than does any conjecture shared between the firms including the standard Cournot–Nash equilib- rium (CNE). Yet, when the private rival is foreign, the CCE generates substantially less privatization than the CNE. The optimal extent of privatization with a domestic rival exceeds that with a foreign rival in the CCE as well as in the CNE. Keywords Consistent conjectures · Partial privatization · Mixed oligopoly JEL Classification L1 · L3 J. S. Heywood Department of Economics, University of Wisconsin-Milwaukee, P. O. Box 413, Milwaukee, WI 53201, USA e-mail: heywood@uwm.edu G. Ye (B ) Hanqing Advanced Institute of Economics and Finance, School of Economics, Renmin University of China, No. 59, Zhongguancun Street, Beijing 100872, China G. Ye Lingnan (University) College, Sun Yat-Sen University, 135 Xingang Xi Road, Guangzhou 510275, China e-mail: gye@lingnan.net 123