When Does Start-Up Innovation Spur the Gale of Creative Destruction?

Abstract

This article studies the determinants of commercialization strategy for start-up innovators. We examine whether the returns on innovation are earned through product market competition or through cooperation with established firms (through licensing, alliances, or acquisition). Our hypotheses are that the relative returns to cooperation are increasing in (i) control over intellectual property rights, (ii) low transaction costs, and (iii) sunk costs associated with product market entry. Using a novel dataset of the commercialization strategies of start-up innovators, our results suggest that the procompetitive impact of start-up innovation - the gale of creative destruction - depends on imperfections in the market for ideas.