Knowledge Transfer and Partial Equity Ownership
43 Pages Posted: 19 Mar 2012 Last revised: 22 Jul 2015
Date Written: July 1, 2015
When firms form an alliance, it often involves one firm acquiring an equity stake in its alliance partner. Such an alliance weakens competition, but induces knowledge transfer between partner firms. 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 to connect themselves. PEO, merger and independence are all nested in our model, where PEO can arise in equilibrium and the endogenously determined level of PEO can benefit consumers and/or society. We identify conditions under which antitrust authorities would prohibit, partially permit, or permit PEO.
Keywords: knowledge transfer, oligopoly, partial equity ownership, strategic alliances, welfare
JEL Classification: L10, L40, L50
Suggested Citation: Suggested Citation