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When Does Start-Up Innovation Spur the Gale of Creative Destruction?

  • Joshua S. Gans
  • David H. Hsu
  • Scott Stern

This article studies the determinants of commercialization strategy for start-up innovators. We examine whether the returns on innovation are earned through product market competition or through cooperation with established firms (through licensing, alliances, or acquisition). Our hypotheses are that the relative returns to cooperation are increasing in (i) control over intellectual property rights, (ii) low transaction costs, and (iii) sunk costs associated with product market entry. Using a novel dataset of the commercialization strategies of start-up innovators, our results suggest that the procompetitive impact of start-up innovation---the gale of creative destruction---depends on imperfections in the market for ideas.

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Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 33 (2002)
Issue (Month): 4 (Winter)
Pages: 571-586

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Handle: RePEc:rje:randje:v:33:y:2002:i:winter:p:571-586
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  1. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-48, September.
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  11. Lerner, Josh & Merges, Robert P, 1998. "The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 125-56, June.
  12. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107 Elsevier.
  13. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
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  17. repec:cup:cbooks:9780521293853 is not listed on IDEAS
  18. Katz, Michael L & Shapiro, Carl, 1987. "R&D Rivalry with Licensing or Imitation," American Economic Review, American Economic Association, vol. 77(3), pages 402-20, June.
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  27. Lerner, Josh, 1999. "The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program," The Journal of Business, University of Chicago Press, vol. 72(3), pages 285-318, July.
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