AbstractWe investigate the welfare effect of international technology transfer in a quality model. A foreign innovator with a new quality product can license its innovation to the domestic firm(s) via a fixed fee. Findings show that the foreign innovator will license exclusively to the high‐quality firm under Bertrand competition, whereas it may exclusively license to the high‐quality firm, the low‐quality firm, or non‐exclusively to both firms under Cournot competition. Non‐exclusive licensing is necessarily welfare‐enhancing whereas exclusive licensing is welfare‐reducing if the quality of the new technology is not sufficiently superior to that of the domestic ones.