I apply stochastic stability (Kandori, Mailath and Rob, Econometrica 1993, and Young Econometrica 1993) to a contracting game. There are three stages to this game. In the first, a surplus sharing transfer is made. This is followed by a relationship specific investment and finally bargaining over...

We study the dependence of incentives for product innovation on the presence, or absence, of parallel trade. The common assertion is that the presence of parallel trade lowers the incentive for product innovation. Our results support this assertion for some parameter values. However, there are...