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Exclusionary Contracts and Incentives to Innovate

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  • Simen Aardal Ulsaker

    (Oslo Business School, OsloMet, 0176 Oslo, Norway)

Abstract

This paper develops a game-theoretic model to study how exclusionary contracts affect firms’ incentives to invest in innovation. Several symmetric sellers compete to supply an identical product to a set of buyers, and each seller can invest in R&D to develop a higher-quality version of the product. Prior to choosing their R&D investments, sellers may offer exclusionary contracts to buyers. In equilibrium, all buyers sign an exclusionary contract with the same seller, which eliminates rival sellers’ incentives to invest in R&D and concentrates innovative effort in a single firm. Banning exclusionary contracts increases the aggregate probability of innovation and the joint surplus of buyers and sellers only when the R&D technology exhibits sufficiently strong diseconomies of scale.

Suggested Citation

  • Simen Aardal Ulsaker, 2026. "Exclusionary Contracts and Incentives to Innovate," Games, MDPI, vol. 17(1), pages 1-19, February.
    • Handle: RePEc:gam:jgames:v:17:y:2026:i:1:p:8-:d:1856346
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