2016

Creative Destruction and Productive Preemptive Acquisitions

Reprint No. 2016:29

Author(s): Pehr-Johan Norbäck, Lars Persson and Roger SvenssonYear: 2016 Title: Journal of Business Venturing Volume (No.): 31 (3) Pages: 326–343
Online article (restrictions may apply)
Preliminary version


We develop a model of entrepreneurial innovation for entry and sale into oligopolies suitable for welfare analysis. We show that the expected consumer welfare can be higher under commercialization by sale than under commercialization by entry despite increased market power in the product market. The reason is that when the quality of the invention is sufficiently high, preemptive bidding competition among incumbents drives the acquisition price above the entry value. Entrepreneurs who sell their inventions will then have a stronger incentive to develop high-quality inventions than entrepreneurs who aim at entering the product market. Incumbents are hurt by this creative destruction process ignited by the entrepreneurs and thus have an incentive to undertake research to block entrepreneurs' research activities. We show that incumbents' own research effort can reduce, but not eliminate, the entrepreneurs' incentives to innovate for entry or sale.


Reference:
Norbäck, Pehr-Johan, Lars Persson and Roger Svensson (2016), "Creative Destruction and Productive Preemptive Acquisitions". Journal of Business Venturing 31(3), 326–343.

Pehr-Johan Norbäck

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Lars Persson

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lars.persson@ifn.se

Roger Svensson

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roger.svensson@ifn.se

Sick of Inequality?

An Introduction to the Relationship between Inequality and Health

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In this book Andreas Bergh, Therese Nilsson, IFN and Lund University, and Daniel Waldenström, IFN and Paris School of Economics, France, review the latest research on the relationship between inequality and health. What does inequality mean for our health? Does increasing income inequality affect outcomes such as obesity, life expectancy and subjective well-being?

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