Product innovation and market acquisition of firms
AbstractThe paper explores the incentives for an incumbent firm to acquire an entrant willing to sell a product innovation, rather than openly compete with this entrant and, in case of acquisition, the incentives to sell simultaneously both the existing products and the new one, rather than specializing on a single variant. We prove that, in some circumstances, an incumbent firm can find it profitable to make an acquisition proposal to the entrant in order to deter entry. Nevertheless, in this acquisition scenario, a product proliferation strategy is never observed at equilibrium. Rather, the incumbent restricts itself to offer either its own variant or the product innovation produced by the entrant, depending on the quality differential existing between them. It follows that, while being available for sale, sometimes the innovation simply remains unexploited
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2010078.
Date of creation: 01 Dec 2010
Date of revision:
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-12 (All new papers)
- NEP-BEC-2011-02-12 (Business Economics)
- NEP-COM-2011-02-12 (Industrial Competition)
- NEP-ENT-2011-02-12 (Entrepreneurship)
- NEP-IND-2011-02-12 (Industrial Organization)
- NEP-INO-2011-02-12 (Innovation)
- NEP-TID-2011-02-12 (Technology & Industrial Dynamics)
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