Product Innovation Transfer Under Passive Partial Ownership Holdings

Abstract

We investigate the incentives of a high-quality firm to transfer for free its proprietary product innovation technology to its standard-quality rival on which it has passive partial ownership holdings (PPOs). We identify the conditions under which there exists a non-controlling share to make such a transfer pro table for the high-quality fi rm and we show that these conditions are more stringent under Bertrand than under Cournot competition. Finally, we show that the technology transfer increases aggregate output, industry-wide profits, consumers surplus, and social welfare.

Keywords: passive partial ownership, product innovation, technology transfer, imperfectly competitive markets

JEL Classification: D43, L13