Scandinavian Working Papers in Economics
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Research Institute of Industrial Economics (IFN) Working Paper Series

No 867:
Acquisitions, Entry and Innovation in Oligopolistic Network Industries

Pehr-Johan Norbäck (), Lars Persson () and Joacim Tåg ()

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 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.

Keywords: Acquisitions; Entry; Network effects; Innovation; R&D; (follow links to similar papers)

JEL-Codes: L10; L15; L26; L50; L86; O31; (follow links to similar papers)

37 pages, April 6, 2011, Revised November 30, 2016

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This paper is published as:
Norbäck, Pehr-Johan, Lars Persson and Joacim Tåg, (2014), 'Acquisitions, Entry and Innovation in Network Industries', International Journal of Industrial Organization, Vol. 37, November, pages 1-12

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