Voluntary Technology Sharing to Rivals

Technology sharing to rivals and new-product introductions enabled by those technologies are often observed across different industries. We develop a game-theoretic model to examine why a firm would voluntarily share its technology and help its rival develop a new product. We find that the cannibalization consideration in the rival’s multiproduct pricing imposes externality on the focal firm, and this largely gives rise to its incentive to share technology in addition to the potential benefit from the change in demand elasticity. Surprisingly, the rival does not always embrace the shared technology. In equilibrium, as long as the existing product valuation is not too high, the new product is introduced when the new product’s valuation is neither low nor high. When the new product’s valuation is high, the excessive additional competition against the focal firm discourages it from sharing. When the new product’s valuation is low, either cannibalization does not emerge in the rival’s pricing, providing no incentive for the focal firm to share, or the rival could be harmed by a new product with mediocre valuation. We show that social welfare increases with the new-product introduction to a large extent except when the existing product’s valuation is high but the new product’s valuation is relatively low. The new-product introduction increases consumer surplus only when the existing product valuation is low. Compared with technology sharing to an independent third party, the focal firm is more likely to share its technology to the rival.

History: Ram Gopal, Senior Editor; Chad Ho, Associate Editor.

Funding: W. Zeng acknowledges the financial support by the National Natural Science Foundation of China [Grants 71702040, 72262013] and “Nan Hai Xin Xing” Education Platform Project of Hainan Province, China.

Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2024.1255.