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Acquisitions, Entry, and Innovation in Network Industries

Author

Listed:
  • Persson, Lars
  • Norbäck, Pehr-Johan
  • TÃ¥g, Joacim

Abstract

In industries with network effects, incumbents? installed bases create barriers to entry that discourage entrepreneurs from developing new innovations. Yet, entry is not the only commercialization route for entrepreneurs. We show that the option of selling to an incumbent increases innovation incentives for entrepreneurs when network effects are strong and incumbents compete to preemptively acquire innovations. We thus establish that network effects and installed bases do not necessarily restrict innovation incentives. We also show that network effects promote acquisitions over entry and that the entrepreneur has strong incentives to invest in the initial user base of the innovation.

Suggested Citation

  • Persson, Lars & Norbäck, Pehr-Johan & TÃ¥g, Joacim, 2013. "Acquisitions, Entry, and Innovation in Network Industries," CEPR Discussion Papers 9585, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:9585
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • 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
    • 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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