Abstract: This study tries to combine the environmental policy and privatization to establish a mixed oligopoly model with pollution abatement and consumption externality. The public enterprise is one of the upstream pollution abatement manufacturers and downstream retailers have to face the problem of consumption externality. It gets the following two major results: First, in a maximum social welfare condition, the more retailers exist, the more possibility to perform privatization; on the other hand, if there are few retailers and more upstream private firms exist, then it is still good for privatization. Second, in a maximum social welfare condition, when the consumption externality decreases, the downstream retailers can also become less and privatization, or the upstream private firms has to become more.