Privatization and Licensing Under Public Budget Constraint

Madhuri H. Shastry and Uday Bhanu Sinha ()
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Madhuri H. Shastry: University of Delhi
Uday Bhanu Sinha: University of Delhi

Journal of Industry, Competition and Trade, 2024, vol. 24, issue 1, No 7, 22 pages

Abstract: Abstract We analyze the interplay of privatization and technology licensing under a public budget constraint, where a cost-disadvantaged public firm has to generate profits to pay for the license. In a mixed duopoly, we consider the licensing of a cost-reducing technology by an outsider innovator. The innovator chooses to license smaller sizes of innovation to both firms, whereas larger innovation is licensed exclusively to the private firm. The public firm alone never gets the license. Thus, the public firm can never “catch up” with its more efficient private rival. We find the possibility of both partial and full privatization in our model. Additionally, from a social planner’s perspective, licensing to both firms is always preferred.

Keywords: Mixed duopoly; Technology licensing; Privatization; Public budget; Welfare (search for similar items in EconPapers)
JEL-codes: H42 L32 L33 O33 O38 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10842-024-00411-y

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