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Entrepreneurial Innovations, Competition and Competition Policy

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  • Norbäck, Pehr-Johan
  • Persson, Lars

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6823.

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Date of creation: May 2008
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Handle: RePEc:cpr:ceprdp:6823

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Keywords: Antitrust; Competition; Competition Policy; Entrepreneurs; Innovations;

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Citations

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Cited by:
  1. Ganslandt, Mattias & Persson, Lars & Vasconcelos, Helder, 2007. "Asymmetric Collusion and Merger Policy," Working Paper Series 719, Research Institute of Industrial Economics.
  2. Gans, Joshua S. & Persson, Lars, 2012. "Entrepreneurial Commercialization Choices and the Interaction between IPR and Competition Policy," Working Paper Series 895, Research Institute of Industrial Economics.
  3. Pehr-Johan Norbäck & Lars Persson & Joacim Tag, 2013. "Buying to Sell: Private Equity Buyouts and Industrial Restructuring," CESifo Working Paper Series 4338, CESifo Group Munich.
  4. Ganslandt, Mattias & Persson, Lars & Vasconcelos, Helder, 2008. "Asymmetric Cartels - a Theory of Ring Leaders," CEPR Discussion Papers 6829, C.E.P.R. Discussion Papers.
  5. Daniel Chiquiar & Manuel Ramos Francia, 2009. "Competitiveness and Growth of the Mexican Economy," Working Papers 2009-11, Banco de México.

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