Premium
Knowledge transfer and partial equity ownership
Author(s) -
Ghosh Arghya,
Morita Hodaka
Publication year - 2017
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12213
Subject(s) - alliance , oligopoly , business , profitability index , equity (law) , industrial organization , profit (economics) , microeconomics , welfare , joint venture , economics , market economy , commerce , finance , political science , law
An alliance often involves one firm acquiring an equity stake in its alliance partner. We explore oligopoly models that capture the link between knowledge transfer and partial equity ownership (PEO), where alliance partners can choose the level of PEO. PEO can increase the alliance partners' profitability by inducing knowledge transfer, but the PEO itself reduces their joint profit because it induces other firms to take more aggressive actions. This trade‐off endogenously determines the level of PEO, which can benefit consumers and/or improve welfare. Given the growing antitrust interest in PEO, we explore the antitrust implications of our analysis.