Time Inconsistency and the Choice Between In-House Production and Technology Transfer

This paper discusses the influence of time inconsistency problem on technology-leading firms' choice between in-house production and technology transfer. Because of incredibility of innovator's commitment of not exporting after licensing, she may not be able to extract rent from licensing as much as when she could commit credibly. Facing this distortion, she chooses in-house production when the choke-off price is high and/or her marginal cost advantage is low. Fixed costs can influence her credibility of commitment and organization choice. Revenue sharing can make commitment become credible in some cases but can't when the choke-off price is high and/or her marginal cost advantage is low. Commitment to not licensing again can be incredible as well, which means technology transfer is most possible when the technology is intermediately transferable as existing literature has noticed.