Exclusive Contracts, Innovation, and Welfare

Yongmin Chen and David Sappington

American Economic Journal: Microeconomics, 2011, vol. 3, issue 2, 194-220

Abstract: We extend Philippe Aghion and Patrick Bolton's (1987) classic model to analyze the equilibrium incidence and impact of exclusive contracts in a setting where research and development (R&D) drives industry performance. An exclusive contract between an incumbent supplier and a buyer arises when patent protection and/or the incumbent's R&D ability are sufficiently pronounced. The exclusive contract generally reduces the entrant's R&D, and can reduce the incumbent's R&D. Exclusive contracts reduce welfare if the incumbent's R&D ability is sufficiently limited, but can increase welfare if patent protection and the incumbent's R&D ability are sufficiently pronounced. (JEL D86, L14, O31)

JEL-codes: D86 L14 O31 (search for similar items in EconPapers)
Date: 2011
Note: DOI: 10.1257/mic.3.2.194
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Citations: View citations in EconPapers (7)

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