Working Paper Series
The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists, and Oligopolists
() and Lars Persson
Abstract: The starting point of this paper is that the exit of
venture-backed firms often takes place through sales to large incumbent
firms. We show that in such an environment, venture-backed firms have a
stronger incentive to develop basic innovations into commercialized
innovations than incumbent firms, due to strategic product market effects.
In turn, this will increase the price for basic innovations, thereby
triggering more basic innovations by entrepreneurs. Consequently, the
presence of a venture capital market implies that more basic innovations
are created and that these become better developed.
Keywords: Acquisitions; Entrepreneurship; Innovation; Venture Capital; (follow links to similar papers)
JEL-Codes: G24; L10; L20; M13; O30; (follow links to similar papers)
39 pages, September 7, 2004
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