A Partial Equilibrium Game Theory Model: Application to the Partial Privatization and Competitiveness of Renault S.A.

Abstract

With globalization and rising competition, alliances became the strategic option of choice. Companies are increasingly required to be attractive partners by meeting performance prerequisites. We develop a game theory model in a duopoly environment to demonstrate the advantages of privatization in improving the firm's performance. We derive the model mathematically then apply it to a real life situation from the automotive industry. We show that the privatized firm performs better than its public counterpart and is suited for private sector allies. Renault's success is not due to its late 1990s tactics, as several analysts argue, but to strategic moves over decades transcending fluctuations in the European economy.

Keywords:

• automotive
• competition
• game theory
• partial equilibrium
• privatization

Notes

2. For example, the French government tested for the first time the fourth week of legally paid holidays in Renault's plants, at the end of the 1960s.

3. Renault is fifth to be privatized after Banque Nationale de Paris (October 1993), Rhone-Poulenc (November 1993), Elf-Aquitaine (January 1994), and the Union des Assurances de Paris (November 1994). Events covered in the Press; Le Monde, The Financial Times, and The International Herald Tribune, Nov–Dec 1994.

5. International Herald Tribune, September–December, 1994.

6. Le Monde, September 1994–December 1995.

7. “Renault belongs to the nation, and the nation is not for sale,” said a one-page petition in Frances Communist partys daily I'Humanité. This was part of a national campaign launched against the privatization. The CGT trade union is the biggest on Renault's shop floor. CGT threatened to do what it could to block the sale, including taking a petition round their local neighborhoods and companies for signatures. But other unions response to the prospect was ambiguous. Nevertheless, Renault was one of the most politically sensitive sales preceding the presidential elections held in April–May of 1995.

8. Financial Times, September–December, 1994.

9. Reuters, Wire Text Tine, June–December, 1994.

10. Bloomberg, Bloomberg Network, June–December, 1994.

11. The price of ELFs share remained stable. It quoted FF388 at the end of 1994, with almost no change compared to its FF385 offer level; The price of UAPs share declined from its FF152 offer level to FF148.90.

21. Georges Besse was assassinated in 1986 by the French terrorist group “Action Directe.”

22. Fonda, D. He Did So Well, Lets Give Him Two CEO Jobs. TIME Magazine. www.time.com, Dec. 1, 2003, 5–8.

24. Renault Annual Earnings Report. Nine Years in Review 1996–2004

30. Assume that we start with ten workers. Cutting the first one or two may require the purchase of two automatic nut tighteners to be operated by the remaining nine or eight. Now as we increase the number of employees taken off the assembly line, we need more sophisticated robot arms that become increasingly expensive. Ultimately, eliminating all workers requires a super robot which can fulfill all the functions of these ten humans, and which is onerously costly.