Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81417
Authors: 
Norbäck, Pehr-Johan
Persson, Lars
Year of Publication: 
2009
Series/Report no.: 
IFN Working Paper 783
Abstract: 
We construct a model where incumbents can either acquire basic innovations from entrepreneurs, or wait and acquire developed innovations from entrepreneurial firms supported by venture capitalists. We show that venture-backed entrepreneurial firms have an incentive to overinvest in development vis à vis incumbents due to strategic product market effects on the sales price of a developed innovation. This will trigger preemptive acquisitions by incumbents, thus increasing the reward for entrepreneurial innovations. We also show that venture capital can emerge in equilibrium if venture capitalists have cost advantages, or if development is associated with double moral hazard problems.
Subjects: 
Acquisitions
Entrepreneurship
Innovation
Venture Capital
JEL: 
G24
L10
L20
M13
O30
Document Type: 
Working Paper

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