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Exclusive Contracts, Innovation, and Welfare

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  • Yongmin Chen
  • David E. M. Sappington

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)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.2.194
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 3 (2011)
Issue (Month): 2 (May)
Pages: 194-220

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Handle: RePEc:aea:aejmic:v:3:y:2011:i:2:p:194-220

Note: DOI: 10.1257/mic.3.2.194
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Cited by:
  1. Chen, Yongmin, 2011. "Refusal to Deal, Intellectual Property Rights, and Antitrust," MPRA Paper 31974, University Library of Munich, Germany.

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