Upstream privatization and downstream licensing. (28th February 2022)

• Record Type: Journal Article
• Authors: Liu, Yi; Wang, Leonard F.S.; Zeng, Chenhang
• Is Part Of: International journal of economic theory. Volume 19:Number 1(2023)
• Page Start: 148
• Page End: 165
• Publication Date: 2022-02-28
• Subjects: mixed oligopoly -- privatization -- technology licensing -- vertical market; Economics -- Periodicals; 330.01
• DOI: 10.1111/ijet.12341
• Languages: English
• ISSNs: 1742-7355

Abstract

Abstract: This study attempts to investigate the impact of downstream foreign licensing on upstream privatization policy in a vertically related market, in which a public firm and a domestic private firm supply exclusively to downstream domestic and foreign firms, respectively. We show that downstream licensing occurs when the cost differential between downstream duopolists is small, and the optimal strategy under licensing is upstream partial privatization. In addition, downstream foreign licensing facilitates upstream privatization. We further show that downstream licensing improves (reduces) local welfare when the cost differential is large (small).