Upstream privatization and downstream licensing |
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Authors: | Yi Liu Leonard F.S. Wang Chenhang Zeng |
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Affiliation: | 1. The College of Economics and Trade, Hunan University, Changsha, Hunan, China;2. Wenlan School of Business, Zhongnan University of Economics and Law, Wuhan, China |
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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). |
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Keywords: | mixed oligopoly privatization technology licensing vertical market |
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