TO TRANSFER OR NOT TO TRANSFER THE BEST TECHNOLOGY UNDER THREAT OF ENTRY - THE CASE OF PRICE-COMPETITION

In this paper we study the possibility of technology transfer from a multinational to a local firm where the transnational corporation is endowed with superior technological capacities. The local firm is protected by a prohibitive tariff which deters entry of the multinational into the local market. The product market is characterised by Bertrand type price game. We show that the ability of the local firm to enter the multinational's existing network of markets in the post-technology transfer situation crucially affects the 'quality' of the transacted technology and the best technology will never feature in such technology trade.