An Economic Framework for Assessment of Innovation Effects of Nascent Competitor Acquisitions

32 Pages Posted: 24 Mar 2021

Date Written: March 22, 2021

Abstract

I propose an economic framework for analyzing innovation effects of nascent competitor acquisitions. The framework identifies nine factors as key determinants of innovation effects. These factors are: replacement, nascent market size, synergies, appropriability, nascent market competition, entrenchment, incumbent innovation competition, merger incentives, and entry incentives. The replacement and incumbent innovation competition factors tend to reduce innovation. The other factors tend to increase innovation. The economic framework enables analysts to gauge the relative severity of innovation effects based on the factors present in a transaction and the magnitude of each factor. The framework incorporates insights from the innovation literature and is based on a model of innovation competition that I develop in this article. Under the model, firms engage in dynamic competition by investing in a future innovation.

Keywords: Nascent competitor acquisitions, killer acquisitions, innovation, investment, entry

JEL Classification: D21, L13, L26, L4, K21

Suggested Citation

Ezrielev, Jay, An Economic Framework for Assessment of Innovation Effects of Nascent Competitor Acquisitions (March 22, 2021). Available at SSRN: https://ssrn.com/abstract=3810486 or http://dx.doi.org/10.2139/ssrn.3810486

Jay Ezrielev (Contact Author)

Elevecon ( email )

United States

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