Acquisitions, entry, and innovation in oligopolistic network industries

Pehr-Johan Norbäck; Lars Persson; Joacim Tåg

doi:10.1016/j.ijindorg.2014.07.003

Acquisitions, entry, and innovation in oligopolistic network industries

Pehr-Johan Norbäck
, Lars Persson
, Joacim Tåg^*

^*Corresponding author for this work

Economics, Helsinki

Research output: Contribution to journal › Article › Scientific › peer-review

13 Citations (Scopus)

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 the innovation incentives for entrepreneurs when the network effects are strong and incumbents compete to preemptively acquire 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.

Original language	English
Peer-reviewed scientific journal	International Journal of Industrial Organization
Volume	37
Issue number	1
Pages (from-to)	1-12
Number of pages	12
ISSN	0167-7187
DOIs	https://doi.org/10.1016/j.ijindorg.2014.07.003
Publication status	Published - 11.2014
MoE publication type	A1 Journal article - refereed

Keywords

512 Business and Management
Acquisitions
Entry
Innovation
Network effects
R&D

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10.1016/j.ijindorg.2014.07.003

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title = "Acquisitions, entry, and innovation in oligopolistic network industries",

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 the innovation incentives for entrepreneurs when the network effects are strong and incumbents compete to preemptively acquire 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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author = "Pehr-Johan Norb{\"a}ck and Lars Persson and Joacim T{\aa}g",

note = "Funding Information: We gratefully acknowledge the financial support from the NET Institute ( http://www.netinst.org )/the Kauffman Foundation ( \#08-02 ), the Marianne and Marcus Wallenberg Foundation ( 2011.0023 ) and Tom Hedelius' and Jan Wallander's Research Foundation ( P2011-00661 ). This paper was written within the Gustaf Douglas Research Program on Entrepreneurship. We thank James Anton, Richard Gilbert, Michael Katz, Dina Nieman, Vasiliki Skreta, Lukas Wiewiorra, Juuso V{\"a}lim{\"a}ki, and the seminar participants at the FDPE IO Workshop at HECER (Helsinki), the NET Institute Conference at NYU/Stern (New York), and the 8th ZEW Conference: The Economics of ICT (Mannheim) and the ParisTech Telecom Economics Seminar Series (Paris) for the excellent comments and suggestions. An earlier version of this paper was distributed with the title “Entrepreneurial Innovations in Network Industries”. ",

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KW - Innovation

KW - Network effects

KW - R&D

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Acquisitions, entry, and innovation in oligopolistic network industries

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