Chapter 6 Coopting “Decisive” Technical Advances

The possibility of an established firm repelling a newcomer's cost reducing technical advances by providing the newcomer access to its currently superior technology, is explored. The oldtimer is supposed to offer his technology in return for the newcomer either ceasing R&D or sharing her findings. It is found that newcomers with the R&D potential to drive the oldtimer out of business cannot be coopted, but that less potent newcomers can. Whenever newcomers are deterred, the product price is higher and technical advance lower than it would be in the absence of a deal.