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Incumbent Innovation and Entry by Spinoff


  • Oliver Falck

    () (Ifo Institute for Economic Research, CESifo and Max Planck Institute of Economics, Jna, Germany)

  • Stephan Heblich

    (Max Planck Institute of Economics, Jena, Germany)


This paper takes a different perspective toward the escape entry incentive of incumbent firms to innovate. New entrants spawned from incumbents are not necessarily a threat; they can complement incumbents' production by commercializing knowledge incumbents are not willing or able to exploit. Accordingly, incumbent innovation determines exploitable knowledge externalities for spinoffs while, at the same time, spinoffs are expected to influence incumbent innovation. To overcome this problem of endogeneity, we apply an IV approach to analyze a rich industry-level dataset (1987–2000) for Germany. We find evidence that entry by spinoffs does, indeed, have a positive impact on incumbent innovation.

Suggested Citation

  • Oliver Falck & Stephan Heblich, 2008. "Incumbent Innovation and Entry by Spinoff," Jena Economic Research Papers 2008-083, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2008-083

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    References listed on IDEAS

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    More about this item


    Innovation; Entry; Spinoff;

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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