Licensing, entry, and privatization

This paper examines how technology licensing by a private innovator affects privatization with ex ante cost asymmetry. In a mixed duopoly, we find that licensing to the public firm reduces the incentive for privatization compared to the situation without licensing. This result is robust in consideration of either a domestic or a foreign entry of a private firm. However, licensing to the entrant private firm increases the incentive for privatization. Furthermore, we show that the effects of entry on privatization critically depend on whether the new entrant is a domestic or foreign one. The entry of a domestic private firm facilitates privatization while that of a foreign private firm hinders privatization.