Working Paper No. 867

Acquisitions, Entry and Innovation in Oligopolistic Network Industries

Published: April 6, 2011, revised November 2016Pages: 37Keywords: Acquisitions; Entry; Network effects; Innovation; R&D JEL-codes: L10; L15; L26; L50; L86; O31

Acquisitions, Entry and Innovation in Oligopolistic Network Industries Pehr-Johan Norbäck, Lars Persson and Joacim Tåg


In industries with network effects, incumbents’ installed bases create barriers to entry that discourage entrepreneurs from developing new innovations. Yet, entry is not the only commercialization route for entrepreneurs. We show that the op- tion of selling to an incumbent increases the innovation incentives for entrepreneurs when the network effects are strong and incumbents compete to preemptively ac- quire innovations. Thus, we establish that network effects and installed bases do not necessarily restrict the innovation incentives, and that network effects promote acquisitions over entry.
 

Pehr-Johan Norbäck

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Ph: +46 8 665 4522
Mob: +46 73 574 3379
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Lars Persson

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

Joacim Tåg

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Ph: +46 8 665 4524
joacim.tag@ifn.se

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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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