Discussion paper

DP16399 On the Dynamics of Technology Transfer

We study the strategic timing and pace of cost reducing technology transfer by an upstream
monopolist to a downstream market when there is potential competition downstream and the
protection of intellectual property rights is imperfect. The possibility that the downstream firm
may not fully compensate the upstream firm for the benefits that it has received, creates "hold-
up" issues. In equilibrium transfer occurs to the same downstream firm in both periods, however
the contractual relationship is crucially affected by the presence of competitors - in particular,
there is a delay in technology transfer, relative to the vertical integration benchmark. The
upstream firm is trying to limit the downstream firm's bargaining power, in an effort to pay
lower rent or no rent in the subsequent period. Price competition downstream does not fully
eliminate the opportunistic behavior created by the imperfect intellectual property rights.


Kourandi, F, S Sachtachtinskagia and N Vettas (2021), ‘DP16399 On the Dynamics of Technology Transfer‘, CEPR Discussion Paper No. 16399. CEPR Press, Paris & London. https://cepr.org/publications/dp16399