Entrepreneurial Innovations, Competition and Competition Policy

Pehr-Johan Norbäck () and Lars Persson

No 6823, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We construct a model where an entrepreneur could either innovate for entry or for sale. It is shown that increased product competition tends to increase the relative profitability of innovation for sale relative to entry. Increased competition reduces entrants' and acquirers' profits in a similar fashion, but also reduces the profit of non-acquirers. Therefore, incumbents' valuations of innovations are less negatively affected by increased competition than entrants' profits. This, in turn, implies that the incentive for innovation for sale can increase with increased competition. Finally, we show that a stricter, but not too strict, merger policy tends to increase the incentive for innovations for sale by ensuring the bidding competition for the innovation, without reducing the total rents for innovations too much.

Keywords: Antitrust; Competition; Competition Policy; Entrepreneurs; Innovations (search for similar items in EconPapers)
JEL-codes: L13 L40 O31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-ent, nep-ino, nep-ipr, nep-knm, nep-mic, nep-reg and nep-tid
Date: 2008-05

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Working Paper: Entrepreneurial Innovations, Competition and Competition Policy (2006)
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