Acquisitions, Entry and Innovation in Network Industries
AbstractWhy do so many high-priced acquisitions of entrepreneurial firms take place in network industries? We develop a theory of commercialization (entry or sale) in network industries showing that high equilibrium acquisition prices are driven by the incumbents' desire to prevent rivals from acquiring innovative entrepreneurial firms. This preemptive motive becomes more important when there is an increase in network effects. A consequence is higher innovation incentives under an acquisition relative to entry. A policy enforcing strict compatibility leads to more entry, but can be counterproductive by reducing bidding competition, thereby also reducing acquisition prices and innovation incentives.
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Bibliographic InfoPaper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 867.
Length: 38 pages
Date of creation: 06 Apr 2011
Date of revision:
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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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More information through EDIRC
Acquisitions; Commercialization; Compatibility; Entry; Network effects; Innovation; R&D; Regulation;
Other versions of this item:
- Norbäck, Pehr-Johan & Persson, Lars & Tåg, Joacim, 2013. "Acquisitions, Entry, and Innovation in Network Industries," CEPR Discussion Papers 9585, C.E.P.R. Discussion Papers.
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-16 (All new papers)
- NEP-BEC-2011-04-16 (Business Economics)
- NEP-COM-2011-04-16 (Industrial Competition)
- NEP-CSE-2011-04-16 (Economics of Strategic Management)
- NEP-ENT-2011-04-16 (Entrepreneurship)
- NEP-INO-2011-04-16 (Innovation)
- NEP-IPR-2011-04-16 (Intellectual Property Rights)
- NEP-NET-2011-04-16 (Network Economics)
- NEP-REG-2011-04-16 (Regulation)
- NEP-TID-2011-04-16 (Technology & Industrial Dynamics)
- NEP-URE-2011-04-16 (Urban & Real Estate Economics)
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.:
- Norbäck, Pehr-Johan & Persson, Lars, 2009.
"The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists and Oligopolists,"
Working Paper Series
783, Research Institute of Industrial Economics.
- Pehr-Johan Norbäck & Lars Persson, 2009. "The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists, and Oligopolists," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1261-1290, December.
- Norbäck, Pehr-Johan & Persson, Lars, 2004. "The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists, and Oligopolists," Working Paper Series 626, Research Institute of Industrial Economics.
- 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.
- 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.
- Norbäck, Pehr-Johan & Persson, Lars & Tag, Joacim, 2012. "Buying to Sell: Private Equity Buyouts and Industrial Restructuring," CEPR Discussion Papers 8992, C.E.P.R. Discussion Papers.
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