Exclusive Contracts, Innovation, and Welfare
American Economic Journal: Microeconomics
vol. 3,
no. 2, May 2011
(pp. 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)Citation
Chen, Yongmin, and David E. M. Sappington. 2011. "Exclusive Contracts, Innovation, and Welfare." American Economic Journal: Microeconomics, 3 (2): 194-220. DOI: 10.1257/mic.3.2.194JEL Classification
- D86 Economics of Contract: Theory
- L14 Transactional Relationships; Contracts and Reputation; Networks
- O31 Innovation and Invention: Processes and Incentives
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