Specialization and Competition in the Venture Capital Industry
Posted: 3 Nov 2011
Date Written: October 27, 2011
An important type of product differentiation in the VC market is industry specialization. We estimate a market structure model to assess competition among differentiated participants in the venture capital (VC) industry. The impacts of competitor presence on profits appear markedly different than in other industries with differentiated competitors. Consistent with the presence of network effects that soften competition, these patterns are concentrated in markets that exhibit dense organizational networks among incumbent VC firms. Markets with sparser incumbent firm networks, by contrast, exhibit competitive patterns that resemble those of other, non-networked industries.
Keywords: Competition, Specialization, Venture Capital, Product Differentiation, Networks
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