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

Pehr-Johan Norbäck and Lars Persson ()
Additional contact information
Lars Persson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden, https://www.ifn.se/en/researchers/ifn-researcher/lars-persson/

No 783, Working Paper Series from Research Institute of Industrial Economics

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.

Keywords: Acquisitions; Entrepreneurship; Innovation; Venture Capital (search for similar items in EconPapers)
JEL-codes: G24 L10 L20 M13 O30 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2009-01-02
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-cta, nep-ent, nep-ino, nep-knm, nep-mic and nep-tid
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Citations: View citations in EconPapers (30)

Published as Norbäck, Pehr-Johan and Lars Persson, 'The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists and Oligopolists' in Journal of the European Economic Association, 2008, pages 1261-1290.

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Related works:
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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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:0783

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