This paper explains why some firms share their technology with competitors. We consider a Hotelling market where duopolists sell products with different qualities. This market consists of heterogeneous consumers, comprising three groups in terms of their valuations of product quality. We show that when consumers’ preferences for product quality are sufficiently heterogeneous, a high-quality firm benefits from sharing quality-enhancing technology.
Funding statement: Grant-in- Aid for JSPS Fellows (Grant / Award Number: ‘Grant Number 15J05223’, ‘Grant Number 16J02442’) KAKENHI (Grant / Award Number: ‘Grant Number 15H05728’).
This paper was previously circulated under the title “Technology Transfer in the Market with Heterogeneous Consumers”. This paper is based on some part of the authors’ discussion paper, “Unilateral Technology Sharing among Competitors in Markets with Heterogeneous Consumers” (http://ssrn.com/abstract=2710496). We are extremely grateful to the Editor, Frans de Vries, and two anonymous referees for their constructive comments and suggestions. We are especially grateful to Noriaki Matsushima for his valuable advice. We would also like to thank Keisuke Hattori, Akio Kawasaki, Tomomichi Mizuno, Yusuke Zennyo, the conference participants at Nanjing University International Conference on Innovation and Industrial Economics, Japanese Economic Association (Niigata University), and the seminar participants at Kyoto University and Osaka University for their very useful comments. We acknowledge financial support from Grant-in-Aid for JSPS Fellows Grant Numbers 16J02442 and 15J05223, and KAKENHI Grant Number 15H05728. All remaining errors are our own.
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