Technology transfer in a horizontally differentiated product-market

This paper considers technology transfer in a Cournot-duopoly market where the firms produce horizontally differentiated products. It turns out that without the threat of imitation from the licensee, the licenser always transfers its best technology. However, the patent licensing contract consists of up-front fixed fee and per unit output royalty for products of neither close substitutes nor isolated. In case the goods are close substitutes then only per unit output royalty is the optimal solution. However, whether the incentive for imitation increases with product differentiation is ambiguous. Hence, with the presence of credible imitation threat, the relation between the likelihood of best technology transfer and product differentiation is not clear always