Working Paper No. 670

Entrepreneurial Innovations, Competition and Competition Policy

Published: September 22, 2006, revised May 5, 2010Keywords: Acquisitions; Entrepreneurship; Innovation; CompetitionJEL-codes: G34; L13; L22; M13; O31
Published version

Entrepreneurial Innovations, Competition and Competition Policy Pehr-Johan Norbäck and Lars Persson


We show that, in the case when innovations are for sale, increased product market competition, captured by reduced product market profits, can increase the incentives for innovations. The reason is that the incentive to innovate depends on the acquisition price which, in turn, might increase despite firms in the market making lower profits. We also show that stricter, but not too strict, merger and cartel policies tend to increase the incentive for innovations for sale by ensuring the bidding competition for the innovation and by increasing the relative profitability of being the most efficient firm in the industry. Moreover, it is shown that increased intensity of competition can increase the relative profitability of innovation for sale, relative to innovation for entry.

 

Pehr-Johan Norbäck

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Lars Persson

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

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