American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
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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