The drivers and strategic consequences of knowledge transfer: Market potential vs production cost

It is extensively recognized that market potential and production cost disadvantage are two main drivers of knowledge transfer by the firms of developed countries. However, the different impacts of the two drivers on knowledge transfer, and further on industry structure, have hardly been distinguished and analyzed. Based on the results of a game model, we find in this paper that: (1)firms may actively transfer knowledge when driven by market potential for increasing profit, but may do so passively for decreasing profit when driven by production cost disadvantage; (2)contrary to the monotone relationship driven by market potential, the impacts of production cost disadvantage on knowledge transfer may exhibit a inversed U-curve relationship; (3)finally, the conditions under which the different strategic consequences at industry level such as disintegration or reintegration of industry chain resulted from knowledge transfer driven by the two drivers are also been distinguished and analyzed.