Creative Destruction and Productive Preemption

63 Pages Posted: 14 Mar 2011

See all articles by Pehr-Johan Norbäck

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN)

Lars Persson

Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Roger Svensson

Research Institute of Industrial Economics (IFN)

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Date Written: March 2011

Abstract

We develop a theory of innovation for entry and sale into oligopoly, and show that an invention of higher quality is more likely to be sold (or licensed) to an incumbent due to strategic product market effects on the sales price. 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 bidding competition. Asymmetric information problems are shown to be solved by verification through entry for sale.

Keywords: Acquisitions, Entrepreneurship, Innovation, Ownership, Patent, Start-ups

JEL Classification: G24, L1, L2, M13, O3

Suggested Citation

Norbäck, Pehr-Johan and Persson, Lars and Svensson, Roger, Creative Destruction and Productive Preemption (March 2011). CEPR Discussion Paper No. DP8281, Available at SSRN: https://ssrn.com/abstract=1782575

Pehr-Johan Norbäck (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Lars Persson

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Roger Svensson

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
+46-8-6654549 (Phone)
+46-8-6654599 (Fax)

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