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)
Chen, Yongmin, and David E. M. Sappington.
"Exclusive Contracts, Innovation, and Welfare."
American Economic Journal: Microeconomics,
Economics of Contract: Theory
Transactional Relationships; Contracts and Reputation; Networks
Innovation and Invention: Processes and Incentives