The unilateral incentives for technology transfers: Predation (and deterrence) by proxy

Joint production between rival firms often entails knowledge transfers without direct compensation, leaving the question as to why more efficient firms would give their rivals such an advantage. We find that such transfers are credible mechanisms to make the market more competitive so as to deter entry or force exit. We determine that with free entry such transfers are profitable and further it may be optimal to predate or deter every firm possible so that a market with many firms can become a duopoly. While consumers are harmed by such action, production efficiency normally increases sufficiently so that welfare increases. (C) 2008 Elsevier B.V. All rights reserved.