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

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Author Info
Norbäck, Pehr-Johan () (Research Institute of Industrial Economics (IFN))
Persson, Lars () (Research Institute of Industrial Economics (IFN))

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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.

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Publisher Info
Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 783.

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Length: 38 pages
Date of creation: 02 Jan 2009
Date of revision:
Handle: RePEc:hhs:iuiwop:0783

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Related research
Keywords: Acquisitions; Entrepreneurship; Innovation; Venture Capital;

Other versions of this item:

Find related papers by JEL classification:
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Friberg, Richard & Norbäck, Pehr-Johan & Persson, Lars, 2008. "Privatization, Investment and Ownership Efficiency," Working Paper Series 744, Research Institute of Industrial Economics. [Downloadable!]
  2. Norbäck, Pehr-Johan & Persson, Lars, 2006. "The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists and Oligopolists," CEPR Discussion Papers 5449, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Fabrizi, Simona & Lippert, Steffen & Norback, Pehr-Johan & Persson, Lars, 2007. "Venture Capitalists, Asymmetric Information and Ownership in the Innovation Process," MPRA Paper 6265, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Stennek, Johan, 2007. "Exclusive Quality - Why Exclusive Distribution May Benefit the TV Viewers," CEPR Discussion Papers 6072, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Friberg, Richard & Norbäck, Pehr-Johan & Persson, Lars, 2008. "Getting a Better Price: Strategic Behaviour before Changes in Ownership of Corporate Assets," Working Paper Series 777, Research Institute of Industrial Economics. [Downloadable!]
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