Technology-Trading Coalitions in Supergames

Abstract

We attempt to explain the observation that rival firms often share their technologies. We show that the trading of technical information over the long haul can be sustained as an equilibrium in supergames. The strategy of ejection of a cheating firm from a technology-trading coalition, followed by the continuation of technology trading by the noncheating members, better facilitates trading than does a strategy in which cheating results in the dissolution of the coalition. Technology trading is often welfare improving, and firms may form small coalitions.