Working Paper: CEPR ID: DP8281
Authors: Pehr-Johan Norbäck; Lars Persson; Roger Svensson
Abstract: We develop a theory of innovation for entry and sale into oligopoly, and show that an invention of higher quality is more likely to be sold (or licensed) to an incumbent due to strategic product market effects on the sales price. Preemptive acquisitions by incumbents are shown to stimulate the process of creative destruction by increasing the entrepreneurial effort allocated to high-quality invention projects. Using data on patents granted to small firms and individuals, we find evidence that high-quality inventions are sold under bidding competition. Asymmetric information problems are shown to be solved by verification through entry for sale.
Keywords: acquisitions; entrepreneurship; innovation; ownership; patent; startups
JEL Codes: G24; L1; L2; M13; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher-quality inventions (L15) | likelihood of sale rather than entry (L11) |
| Commercialization mode (sale vs. entry) (L17) | incentives for entrepreneurs to develop high-quality inventions (O31) |
| Preemptive acquisitions by incumbents (G34) | research incentives for entrepreneurs (O31) |
| research incentives for entrepreneurs (O31) | probability of successful innovations (O36) |
| Commercialization by sale (L17) | expected consumer welfare (D69) |