Working Paper: CEPR ID: DP16399
Authors: Nikolaos Vettas; Frago Kourandi; Sabina Sachtachtinskagia
Abstract: We study the strategic timing and pace of cost reducing technology transfer by an upstreammonopolist to a downstream market when there is potential competition downstream and theprotection of intellectual property rights is imperfect. The possibility that the downstream firmmay 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, howeverthe 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. Theupstream firm is trying to limit the downstream firm's bargaining power, in an effort to paylower rent or no rent in the subsequent period. Price competition downstream does not fullyeliminate the opportunistic behavior created by the imperfect intellectual property rights.
Keywords: technology transfer; vertical contracts; holdup
JEL Codes: O3; L1; L22; D23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| U's decision to transfer technology to D (O39) | D's potential to not fully compensate U (D89) |
| D's bargaining power and risk of opportunistic behavior (L14) | U delays technology transfer (O39) |
| technology transfer to D (O39) | D gains a cost advantage (F12) |
| D's cost advantage (D43) | D extracts rents from U (F16) |
| competition among downstream firms (L11) | holdup problem persists (D86) |
| market structure (vertical integration vs. vertical separation) (L22) | speed of technology transfer (O33) |