| dc.description.abstract | We hypothesize that multinational firms transfer technology to local suppliers to increase their productivity and to lower input prices. As a result, not just the foreign-owned firm, but all downstream firms of that supply market obtain lower prices. The purpose of this paper is to discuss the impact of foreign manufacturers entering the vertical market on social welfare when the vertical technology transfer is considering. Further relaxes the assumption that the downstream market is free to come in and out to explore whether it will affect the optimal technology transfer decision. As well as the number of the local downstream firm and the degree of efficiency changes how to affect social welfare.
Our model is a three stage game in vertical related market with endogenous vertical technology transfer (VTT). Further, the technology transfer generates an externality that benefits buyers in other sectors downstream from the supply sector as well. This externality may provide a justification for policy intervention to encourage foreign investment. We show that, even though the technology transfer is costly to the multinational firm, the optimal technology transfer decision is positive. When the multinational firm transfer optimal technology to the local supplier, although the local downstream firm faces stronger competition, it obtains the social welfare at better terms. Finally, this article relaxes the hypothesis that the downstream market is free to move in and out, this resulting in the optimal technology transfer decision of foreign firms becomes zero, and its entry does not affect the social welfare of the host country. | en_US |