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Incumbent Innovation and Entry by Spinoff

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  • Oliver Falck

    ()
    (Ifo Institute for Economic Research, CESifo and Max Planck Institute of Economics, Jna, Germany)

  • Stephan Heblich

    (Max Planck Institute of Economics, Jena, Germany)

Abstract

This paper takes a different perspective toward the escape entry incentive of incumbent firms to innovate. New entrants spawned from incumbents are not necessarily a threat; they can complement incumbents' production by commercializing knowledge incumbents are not willing or able to exploit. Accordingly, incumbent innovation determines exploitable knowledge externalities for spinoffs while, at the same time, spinoffs are expected to influence incumbent innovation. To overcome this problem of endogeneity, we apply an IV approach to analyze a rich industry-level dataset (1987–2000) for Germany. We find evidence that entry by spinoffs does, indeed, have a positive impact on incumbent innovation.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2008-083.

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Date of creation: 04 Nov 2008
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Handle: RePEc:jrp:jrpwrp:2008-083

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Keywords: Innovation; Entry; Spinoff;

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