Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 799: Creative Destruction and Productive Preemption

Pehr-Johan Norbäck (), Lars Persson () and Roger Svensson ()
Additional contact information
Pehr-Johan Norbäck: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Lars Persson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Roger Svensson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: We develop a theory of commercialization mode (entry or sale) of entrepreneurial inventions 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. Moreover, 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 detailed data on patents granted to small firms and individuals, we find evidence that high-quality inventions are often sold, and that they are sold under bidding competition.

Keywords: Acquisitions; Entrepreneurship; Innovation; Start-ups; Patent; Ownership; Quality

JEL-codes: G24; L10; L20; M13; O30

33 pages, First version: June 10, 2009. Revised: September 12, 2014.

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