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Complementary Assets, Start-Ups and Incentives to Innovate

  • Luca Colombo

    ()

    (DISCE, Università Cattolica)

  • Herbert Dawid

    ()

    (Universität Bielefeld)

In this paper we examine in a game theoretic framework in how far market conditions facilitating start-up formation positively affect technical change and firms' profits. We consider a model in which R&D efforts of an incumbent firm generate technological know-how embodied in key R&D employees, who might use this know-how to form a start-up. Market conditions, in particular the availability of complementary assets, influence whether new firms are created and determine expected profits for start-up-founders. Easy availability of complementary assets has the direct effect that the generation of start-ups, which leads to the diffusion and duplication of know-how, is fostered. However, incentives of incumbent firms to invest in R&D might be reduced because of the increased danger of knowledge loss through spin-out formation. We fully characterize the effects of an increase in the availability of complementary assets, demonstrating that under certain market conditions the effects on innovative activities and industry profits can be negative.

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File URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0080.pdf
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Paper provided by Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) in its series DISCE - Quaderni dell'Istituto di Economia e Finanza with number ief0080.

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Length: nn pages 28
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:ctc:serie3:ief0080
Contact details of provider: Web page: http://www.unicatt.it/Istituti/EconomiaFinanza
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