Complementary Assets, Start-Ups and Incentives to Innovate

Luca Colombo and Herbert Dawid

No ief0080, DISCE - Quaderni dell'Istituto di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: In this paper we examine in a game theoretic framework in how far market conditions facilitating start-up formation positively affect technical change and firms' profits. We consider a model in which R&D efforts of an incumbent firm generate technological know-how embodied in key R&D employees, who might use this know-how to form a start-up. Market conditions, in particular the availability of complementary assets, influence whether new firms are created and determine expected profits for start-up-founders. Easy availability of complementary assets has the direct effect that the generation of start-ups, which leads to the diffusion and duplication of know-how, is fostered. However, incentives of incumbent firms to invest in R&D might be reduced because of the increased danger of knowledge loss through spin-out formation. We fully characterize the effects of an increase in the availability of complementary assets, demonstrating that under certain market conditions the effects on innovative activities and industry profits can be negative.

Keywords: Complementary Assets; Technical Change; R&D Effort; Startup (search for similar items in EconPapers)
JEL-codes: L20 M13 O30 (search for similar items in EconPapers)
Pages: nn pages 28
Date: 2008-04
New Economics Papers: this item is included in nep-com, nep-ent, nep-ino, nep-ipr, nep-pr~, nep-mic and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Complementary assets, start-ups and incentives to innovate (2016)
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