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Upstream privatization and downstream licensing

Author

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  • Yi Liu
  • Leonard F.S. Wang
  • Chenhang Zeng

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).

Suggested Citation

  • Yi Liu & Leonard F.S. Wang & Chenhang Zeng, 2023. "Upstream privatization and downstream licensing," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(1), pages 148-165, March.
    • Handle: RePEc:bla:ijethy:v:19:y:2023:i:1:p:148-165
    DOI: 10.1111/ijet.12341
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    References listed on IDEAS

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    Cited by:

    1. Wu, Xiaoting & Mukherjee, Arijit & Zeng, Chenhang, 2024. "Privatization and innovation in a vertical structure," China Economic Review, Elsevier, vol. 84(C).

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