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Being the best or being the only one – Dichotomous R&D strategy choices by startups aiming for acquisition

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  • Henkel, Joachim
  • Rønde, Thomas

Abstract

We characterize optimal R&D strategies in a model where an incumbent and a startup with no possibility to enter the market choose both investment level and radicalness of their R&D projects. The incumbent commercializes the most valuable project, and, where necessary, acquires the startup. The startup has two locally optimal strategies: A “high quality” and a “low cost” strategy where it aims for having the most valuable and the only successful R&D project, respectively. The struggle for rents inside the innovation system results in an inefficient portfolio of projects compared to the R&D choices that a monopolist would make.

Suggested Citation

  • Henkel, Joachim & Rønde, Thomas, 2025. "Being the best or being the only one – Dichotomous R&D strategy choices by startups aiming for acquisition," Journal of Economic Behavior & Organization, Elsevier, vol. 234(C).
    • Handle: RePEc:eee:jeborg:v:234:y:2025:i:c:s016726812500143x
    DOI: 10.1016/j.jebo.2025.107024
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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