Abstract
We study how exclusive contract of a service provider can be leveraged to induce supply-side competition on product innovation, which leads to virtuous self-sustaining cycle. This study uses the difference in differences method to estimate the impact of iPhone to the competitive landscape. Over the exclusive contract period between Apple and AT&T, other competing device manufacturers supplied their better phones to AT&T. We find this competition- induced product enhancement survived even after the exclusivity had expired. These findings are supported by robustness checks involving sharpened narrow time window and placebo events. We also find that manufacturers enhance their products for AT&T in those technical aspects that iPhone excelled. Our study show how exclusive acquisition of a superior product can create virtuous cycle of inducing better products through product innovation contest on service network.
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