Abstract

http://ssrn.com/abstract=1804261
 
 

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Acquisitions, Entry and Innovation in Network Industries


Pehr-Johan Norbäck


Research Institute of Industrial Economics (IFN)

Lars Persson


Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Joacim Tåg


Research Institute of Industrial Economics (IFN)

April 5, 2011

IFN Working Paper No. 867

Abstract:     
Why do so many high-priced acquisitions of entrepreneurial firms take place in network industries? We develop a theory of commercialization (entry or sale) in network industries showing that high equilibrium acquisition prices are driven by the incumbents' desire to prevent rivals from acquiring innovative entrepreneurial firms. This preemptive motive becomes more important when there is an increase in network effects. A consequence is higher innovation incentives under an acquisition relative to entry. A policy enforcing strict compatibility leads to more entry, but can be counterproductive by reducing bidding competition, thereby also reducing acquisition prices and innovation incentives.

Number of Pages in PDF File: 39

Keywords: Acquisitions, commercialization, compatibility, entry, network effects, innovation, R&D, regulation

JEL Classification: L10, L15, L26, L50, L86, O31

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Date posted: April 7, 2011  

Suggested Citation

Norbäck, Pehr-Johan and Persson, Lars and Tåg, Joacim, Acquisitions, Entry and Innovation in Network Industries (April 5, 2011). IFN Working Paper No. 867. Available at SSRN: http://ssrn.com/abstract=1804261 or http://dx.doi.org/10.2139/ssrn.1804261

Contact Information

Pehr-Johan Norbäck
Research Institute of Industrial Economics (IFN) ( email )
Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
Lars Persson
Research Institute of Industrial Economics (IFN) ( email )
Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Joacim Tåg (Contact Author)
Research Institute of Industrial Economics (IFN) ( email )
Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
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