The Unilateral Incentives for Technology Transfers: Predation by Proxy (and Deterrence)

Joint production between rival firms often entails knowledge transfers without direct compensation, leaving the question as to why more efficient firms would give their rivals such an advantage.  We find that such transfers are credible mechanisms to make the market more competitive so as to deter entry or force exit.  We determine that with free entry such transfers are profitable and further it is optimal to predate or deter every firm possible so that a market with many firms can become a duopoly.  While consumers are harmed by such action, production efficiency increases sufficient to cause welfare to increase.