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 an ownership threshold to make such a free transfer profitable for the high-quality firm and show that these conditions are more stringent under Bertrand than under Cournot competition. Finally, we show that technology transfer increases aggregate output, industry-wide profits, consumers surplus, and social welfare.