Working Paper No. 626

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

Published: September 2, 2004; revised June 11, 2007Pages: 41Keywords: Acquisitions; Entrepreneurship; Innovation; Venture Capital JEL-codes: G24; L10; L20; M13; O30

The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists, and Oligopolists Pehr-Johan Norbäck and Lars Persson


Exit of venture-backed firms often takes place through sales to incumbents. We show that in such an environment, venture-backed firms have stronger incentive to develop basic innovations into commercialized innovations than incumbents, due to strategic product market effects on the sales price of the venture-backed firm. This will increase the price for basic innovations, thereby triggering more innovations by entrepreneurs. Consequently, a venture capital market implies that more innovations are created, and that these become better developed. Moreover, we show that to exist in equilibrium, venture capitalists must be more efficient, otherwise incumbents will preempt venture capitalists entering the market by acquiring basic innovations.  

Pehr-Johan Norbäck

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Ph: +46 8 665 4522
Mob: +46 73 547 3379
pehr-johan.norback@if...

Lars Persson

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

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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