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Profit-Enhancing Know-How Disclosure: A Strategic View


In general, the disclosure of know-how and technological knowledge could harm the disclosing firm. Firms, however, often share their know-how freely and yet enhance their profits. We provide a theoretical framework and a new insight into know-how disclosure. We consider a multiproduct oligopolistic market in which an incumbent firm that can disclose its cost-reducing know-how and several new entrants exist. Each firm supplies products in two separate markets. The incumbent firm has already allocated its production resources to one market (market A) and discloses its know-how concerning production in market A. We show that the disclosure of know-how for cost reduction can enhance the profit of the incumbent (the disclosing) firm. Using the disclosed know-how, the entrants can produce for a low cost in market A and allocate their production resources to the other market. As a result, competition in market A is less severe than that in the case in which the incumbent does not disclose its know-how. We also provide several extensions of the basic scenario.

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Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 80 (2012)
Issue (Month): 5 (09)
Pages: 560-579

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Handle: RePEc:bla:manchs:v:80:y:2012:i:5:p:560-579
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