Abstract: The Cournot quantity competition model is applied to the comparative study on the two technological strategies, i.e., vertical integration and franchise fee, within the framework of vertical restraints if the upstream firm supplies new products through technological innovation with cost reduced. It is found that the upstream firm's profits resulting from vertical integration is always higher than that from franchise fee if the new products cause the downstream firm's marginal cost less reduced. And the upstream firm's profits resulting from franchise fee is higher than that from vertical integration under conditions that the quality of the new products supplied by downstream firm remain unchanged if the new products cause the downstream firm's marginal cost more reduced. However, when the quality of the new products supplied by downstream firm cannot be kept unchanged, the upstream firm's profits resulting from vertical integration is higher than that from franchise fee. As to the social welfare, it will be improved further only if the upstream firm chooses the strategy of franchise fee when the new products slightly affect the cost reduction.