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
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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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Roger Svensson

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roger.svensson@ifn.se

Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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