Technology transfer and second sourcing when production costs follow an experience curve

This paper presents a model for evaluating technology transfer agreements between firms when production costs decline with experience. Results indicate that licensing is advantageous for the potential licensor only under special conditions. Several possibly advantageous licensing situations are examined including licensing in response to a second-source requirement by a large potential customer. Also, the desirability of technical assistance in addition to licensing is examined along with the implications of different compensation agreements.