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Early Entry to Verify Quality Stimulates Breakthrough Innovations

Popular Science
Norbäck, Pehr-Johan, Lars Persson and Roger Svensson (2018). “Early Entry to Verify Quality Stimulates Breakthrough Innovations”., CEPR Policy Portal, November 3.

Pehr-Johan Norbäck, Lars Persson, Roger Svensson

Most OECD countries provide subsidies to stimulate the entry and growth of small entrepreneurial firms. This column argues that a better policy would be to combine these subsidy schemes with policies that improve the merger and acquisition market for small entrepreneurial firms, because the best strategy for such firms is to make an early entry to market to signal innovation quality and overcome asymmetry problems. Entrepreneurs would be able to create bidding competition among incumbents and receive a higher acquisition price, incentivising them to develop breakthrough innovations that will raise welfare.

Pehr-Johan Norbäck

+46 (0)8 665 4522
+46 (0)73 574 3379

Roger Svensson

+46 (0)8 665 4549
+46 (0)70 491 0166