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International Journal of Industrial Organization

Acquisitions, Entry, and Innovation in Oligopolistic Network Industries

Scientific Article in English
Reference
Norbäck, Pehr-Johan, Lars Persson and Joacim Tå̊g (2014). “Acquisitions, Entry, and Innovation in Oligopolistic Network Industries”. International Journal of Industrial Organization 37, 1–12. doi.org/10.1016/j.ijindorg.2014.07.003

Authors
Pehr-Johan Norbäck, Lars Persson, Joacim Tå̊g

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 option of selling to an incumbent increases the innovation incentives for entrepreneurs when the network effects are strong and incumbents compete to preemptively acquire 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.

Pehr-Johan Norbäck

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pehr-johan.norback@ifn.se