Hiding or sharing? Technology upgrade, technology spillover and information asymmetry

Abstract

One giant manufacturer (M1) upgrades a common supplier’s production technology through investments, while the supplier (it), holding the technology spillover information privately, may spill the upgraded technology over to a rival manufacturer (M2). This study examines whether the supplier should share the information of technology spillover with M1. We first find technology spillover hurts not only M1 but also the supplier and M2, when the production cost is high and the investment cost is low at a high level of the real technology spillover degree, no matter whether the supplier shares the technology spillover information or not. As such, it may be unwise for the supplier to implement technology spillover and unprofitable for M2 to take a free ride of technology spillover conditionally. Furthermore, when the supplier can receive more payoffs by spilling the upgraded technology over to M2 under certain conditions, it should share (hide) the technology spillover information, and such sharing (hiding) strategy may create a “win-win-win”’ outcome for the three players, if the supplier is of low (high)-spillover type and the real degree of technology spillover falls into a high range.