2006–2010

The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists, and Oligopolists

Reprint No. 2009:38

Author(s): Pehr-Johan Norbäck and Lars PerssonYear: 2009 Title: Journal of the European Economic Association Volume (No.): 7 (6) Pages: 1261–1290
Online article (restrictions may apply)


We construct a model where incumbents can either acquire basic innovations from entrepreneurs, or wait and acquire developed innovations from entrepreneurial firms supported by venture capitalists. We show that venture-backed entrepreneurial firms have an incentive to overinvest in development vis à vis incumbents due to strategic product market effects on the sales price of a developed innovation. This will trigger preemptive acquisitions by incumbents, thus increasing the reward for entrepreneurial innovations. We also show that venture capital can emerge in equilibrium if venture capitalists have cost advantages, or if development is associated with double moral hazard problems.


Reference:
Norbäck, Pehr-Johan and Lars Persson (2009), "The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists, and Oligopolists". Journal of the European Economic Association 7(6), 1261–1290.

Pehr-Johan Norbäck

Contact

Ph: +46 8 665 4522
Mob: +46 73 574 3379
pehr-johan.norback@if...

Lars Persson

Contact

Ph: +46 8 665 4504
lars.persson@ifn.se

Elgar Companion to

Social Capital and Health

Martin Ljunge okt 2018.jpg

Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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