Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81358
Authors: 
Norbäck, Pehr-Johan
Persson, Lars
Tåg, Joacim
Year of Publication: 
2011
Series/Report no.: 
IFN Working Paper 867
Abstract: 
Why do so many high-priced acquisitions of entrepreneurial firms take place in network industries? We develop a theory of commercialization (entry or sale) in network industries showing that high equilibrium acquisition prices are driven by the incumbents' desire to prevent rivals from acquiring innovative entrepreneurial firms. This preemptive motive becomes more important when there is an increase in network effects. A consequence is higher innovation incentives under an acquisition relative to entry. A policy enforcing strict compatibility leads to more entry, but can be counterproductive by reducing bidding competition, thereby also reducing acquisition prices and innovation incentives.
Subjects: 
Acquisitions
Commercialization
Compatibility
Entry
Network effects
Innovation
R&D
Regulation
JEL: 
L10
L15
L26
L50
L86
O31
Document Type: 
Working Paper

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