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Free licensing strategy and ex post privatization in a mixed oligopoly

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  • Cho, Sumi
  • Kim, Doori
  • Lee, Sang-Ho

Abstract

This paper investigates free licensing strategy with a flexible privatization policy in a mixed oligopoly in which licensing contracts are observable before the government chooses its optimal degree of ex post privatisation. We examine and compare foreign and public licensors and explore the strategic relationship between the foreign share of passive ownership in domestic firms and the cost efficiency gap between licensor and licensee. We show that licensing strategies always yield more privatization and higher welfare, but the incentive for free licensing between the foreign licensor and public licensor differ. We also consider open technology, where all firms have the same technology and find a contrasting result. The optimal degree of privatization under open technology is the lowest (highest) under foreign (public) licensing contracts.

Suggested Citation

  • Cho, Sumi & Kim, Doori & Lee, Sang-Ho, 2021. "Free licensing strategy and ex post privatization in a mixed oligopoly," MPRA Paper 106126, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:106126
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    References listed on IDEAS

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F68 - International Economics - - Economic Impacts of Globalization - - - Policy
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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