Summary: This paper shows that it might be profitable for a firm with advanced technology to sell the knowledge to a competing firm with less efficient technology and still remain in the business. A non-cooperative equilibrium with technology transfer may Pareto-dominate the initial equilibrium without technology transfer. In this paper it is shown that technology agreement is likely to occur between firms which are reasonably close in terms of their initial technologies. Such an equilibrium is an interesting possibility in the absence of credibly sustainable collusive outcomes.