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Acquisitions in a Patent Contest Model with Large and Small Firms

  • Robin Kleer
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    Big companies and small innovation factories possess different advantages in a patent contest. While large firms typically have a better access to product markets, small firms often have a superior R&D efficiency. In this paper I model a patent contest with asymmetric firms. In a pre-contest acquisition game large firms bid sequentially for small firms to combine respective advantages. Sequential bidding allows the first large firm to wait strategically and let the other firm acquire. For low efficiencies this leads to an asymmetric market structure even though the initial situation is symmetric. Furthermore, acquisitions increase the chances for a successful innovation.

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    File URL: http://www.bgpe.de/texte/DP/061_kleer.pdf
    File Function: First version, 2008
    Download Restriction: no

    Paper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 061.

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    Length: 20 pages
    Date of creation: Jun 2008
    Date of revision:
    Handle: RePEc:bav:wpaper:061_kleer
    Contact details of provider: Web page: http://www.bgpe.de/

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    1. 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.
    2. Nilssen, T. & Sorgard, L., 1995. "Sequential Horizontal Mergers," Memorandum 30/1995, Oslo University, Department of Economics.
    3. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
    4. Zoltan Acs & David Audretsch, 1990. "Innovation and Small Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011131, March.
    5. Peter-J. Jost & Claus van der Velden, 2006. "Mergers in Patent Contest Models with Synergies and Spillovers," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 58(2), pages 157-179, April.
    6. Veugelers, Reinhilde & Cassiman, Bruno, 1999. "Make and buy in innovation strategies: evidence from Belgian manufacturing firms," Research Policy, Elsevier, vol. 28(1), pages 63-80, January.
    7. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
    8. Harris, Christopher J & Vickers, John S, 1985. "Patent Races and the Persistence of Monopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 33(4), pages 461-81, June.
    9. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-26, June.
    10. Bittlingmayer, George, 1985. "Did Antitrust Policy Cause the Great Merger Wave?," Journal of Law and Economics, University of Chicago Press, vol. 28(1), pages 77-118, April.
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