Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/69551 
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper No. 4075
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We develop a theory of innovation for entry and sale into oligopoly, and show that inventions of higher quality are more likely to be sold (or licensed) to an incumbent due to strategic product market effects on the sales price. Such preemptive acquisitions by incumbents are shown to stimulate the process of creative destruction by increasing the entrepreneurial effort allocated to high-quality invention projects. Using data on patents granted to small firms and individuals, we find evidence that high-quality inventions are sold under preemptive bidding competition. Asymmetric information problems are shown to be solved by verification through entry for sale.
Subjects: 
acquisitions
entrepreneurship
innovation
start-ups
patent
ownership
quality
JEL: 
G24
L10
L20
M13
O30
Document Type: 
Working Paper
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