This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Journal: Microeconomics
  4. May 2011
  5. Exclusive Contracts, Innovation, and Welfare

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

Exclusive Contracts, Innovation, and Welfare

  • Yongmin Chen
  • David E. M. Sappington
American Economic Journal: Microeconomics
vol. 3, no. 2, May 2011
(pp. 194–220)
Download Full Text PDF

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.3.2.194

JEL Classification

  • D86 Economics of Contract: Theory
  • L14 Transactional Relationships; Contracts and Reputation; Networks
  • O31 Innovation and Invention: Processes and Incentives
There are no comments for this article.
Login to Comment