The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists, and Oligopolists

Pehr-Johan Norbäck and Lars Persson

Journal of the European Economic Association, 2009, vol. 7, issue 6, 1261-1290

Abstract: We construct a model where incumbents can either acquire basic innovations from entrepreneurs, or wait and acquire developed innovations from entrepreneurial firms supported by venture capitalists. We show that venture-backed entrepreneurial firms have an incentive to overinvest in development vis à vis incumbents due to strategic product market effects on the sales price of a developed innovation. This will trigger preemptive acquisitions by incumbents, thus increasing the reward for entrepreneurial innovations. We also show that venture capital can emerge in equilibrium if venture capitalists have cost advantages, or if development is associated with double moral hazard problems. (JEL: G24, L1, L2, M13, O3) (c) 2009 by the European Economic Association.

JEL-codes: G24 L1 L2 M13 O3 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (36)

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Related works:
Working Paper: The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists and Oligopolists (2009)
Working Paper: The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists and Oligopolists (2006)
Working Paper: The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists, and Oligopolists (2004)
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