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Acquisitions, Entry and Innovation in Oligopolistic Network Industries

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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 op- tion of selling to an incumbent increases the innovation incentives for entrepreneurs when the network effects are strong and incumbents compete to preemptively ac- quire innovations. Thus, we establish that network effects and installed bases do not necessarily restrict the innovation incentives, and that network effects promote acquisitions over entry.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 867.

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Length: 37 pages
Date of creation: 06 Apr 2011
Date of revision: 30 Nov 2016
Publication status: Published as Norbäck, Pehr-Johan, Lars Persson and Joacim Tåg, 'Acquisitions, Entry and Innovation in Network Industries' in International Journal of Industrial Organization, 2014, pages 1-12.
Handle: RePEc:hhs:iuiwop:0867
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  40. repec:cmf:wpaper:wp2006_0604 is not listed on IDEAS
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