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Discussion Paper Details

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Title: Entrepreneurial Innovations, Competition and Competition Policy

Author(s): Pehr-Johan Norb�ck and Lars Persson

Publication Date: May 2008

Keyword(s): Antitrust, Competition, Competition Policy, Entrepreneurs and Innovations

Programme Area(s): Industrial Organization

Abstract: We construct a model where an entrepreneur could either innovate for entry or for sale. It is shown that increased product competition tends to increase the relative profitability of innovation for sale relative to entry. Increased competition reduces entrants' and acquirers' profits in a similar fashion, but also reduces the profit of non-acquirers. Therefore, incumbents' valuations of innovations are less negatively affected by increased competition than entrants' profits. This, in turn, implies that the incentive for innovation for sale can increase with increased competition. Finally, we show that a stricter, but not too strict, merger policy tends to increase the incentive for innovations for sale by ensuring the bidding competition for the innovation, without reducing the total rents for innovations too much.

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Bibliographic Reference

Norb�ck, P and Persson, L. 2008. 'Entrepreneurial Innovations, Competition and Competition Policy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6823