Entrepreneurial Innovations, Competition and Competition Policy

44 Pages Posted: 12 Jun 2008

See all articles by Pehr-Johan Norbäck

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN)

Lars Persson

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 2008

Abstract

We construct a model where an entrepreneur could either innovate for entry or for sale. It is shown that increased product competition tends to increase the relative profitability of innovation for sale relative to entry. Increased competition reduces entrants' and acquirers' profits in a similar fashion, but also reduces the profit of non-acquirers. Therefore, incumbents' valuations of innovations are less negatively affected by increased competition than entrants' profits. This, in turn, implies that the incentive for innovation for sale can increase with increased competition. Finally, we show that a stricter, but not too strict, merger policy tends to increase the incentive for innovations for sale by ensuring the bidding competition for the innovation, without reducing the total rents for innovations too much.

Keywords: Antitrust, Competition, Competition Policy, Entrepreneurs, Innovations

JEL Classification: L13, L40, O31

Suggested Citation

Norbäck, Pehr-Johan and Persson, Lars, Entrepreneurial Innovations, Competition and Competition Policy (May 2008). CEPR Discussion Paper No. DP6823, Available at SSRN: https://ssrn.com/abstract=1143186

Pehr-Johan Norbäck (Contact Author)

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)

London
United Kingdom

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