Entrepreneurial Innovations, Competition and Competition Policy
44 Pages Posted: 12 Sep 2011
Date Written: May 5, 2010
We construct a model where an entrepreneur could innovate for entry or for sale. It is shown that increased product market competition tends to increase the relative profitability of innovation for sale. 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, and the incentive for innovation for sale can increase with increased competition. Moreover, a stricter, but not too strict, merger policy is shown to increase the incentive for innovations for sale by ensuring the bidding competition for the innovation.
Keywords: Antitrust, Competition, Competition Policy, Entrepreneurs, Innovations
JEL Classification: L13, L40, O31
Suggested Citation: Suggested Citation