Voluntary Technology Sharing to Rivals.

This article investigates a firm's incentive to voluntarily share its proprietary technology with a rival to enable the rival's development of a new competing product. Using a game-theoretic model of two firms producing horizontally differentiated products, the study finds that although the rival's new product increases competition, it also creates a cannibalization effect within the rival's multiproduct pricing that can soften competition and generate a positive externality for the original firm, motivating technology sharing. The firm is inclined to share technology when the new product's valuation is moderate—neither too high to cause excessive competition nor too low to eliminate cannibalization benefits—and the rival adopts the technology only when it is profitable, which is not always the case. The introduction of the new product generally enhances social welfare except when the existing product's valuation is high and the new product's valuation is low; consumer surplus increases only when the existing product's valuation is low. Compared to sharing technology with an independent third party, sharing with a rival is more likely due to the cannibalization externality, which also tends to yield greater social welfare improvements. These findings offer strategic guidance for firms and policymakers regarding technology sharing, new-product introduction, and their implications for market competition and social welfare.