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.

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


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Lars Persson


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An Agenda for Europe

Institutional Reform for Innovation and Entrepreneurship

Omslag 2017 Institutional Reform for Innovation and Entrepreneurship.jpg

The authors of this book, Niklas Elert, Magnus Henrekson and Mikael Stenkula, advise the economies of the European Union to become more entrepreneurial in promoting innovation and economic growth. The authors propose a reform strategy with respect to several aspects to achieve this goal.


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