A Theory of Gazelle Growth: Competition, Venture Capital Finance and Policy

51 Pages Posted: 15 Oct 2020

See all articles by Mehmet Caglar Kaya

Mehmet Caglar Kaya

Mehmet Caglar Kaya

Lars Persson

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

Date Written: July 2, 2019

Abstract

This paper proposes a theory of gazelle growth in which gazelles can either grow organically or by acquisitions. In the model, there are three types of firms: incumbent, target, and gazelle. We show that the lower cost of organic growth can increase the incentives for acquisition growth. The reason for this is that the incumbent understands that if it acquires the target firm, the gazelle will then invest organically anyway to grow, and therefore, the acquisition will not be sufficient to protect the incumbent's market power. The gazelle could then acquire the target firm at a good price. We also show that financial support for the organic growth of gazelles can increase gazelles' growth by acquisitions since incumbents' preemptive motives are reduced.

Suggested Citation

Kaya, Mehmet Caglar and Persson, Lars, A Theory of Gazelle Growth: Competition, Venture Capital Finance and Policy (July 2, 2019). IFN Working Paper No. 1291, 2019, Available at SSRN: https://ssrn.com/abstract=3680711 or http://dx.doi.org/10.2139/ssrn.3680711

Mehmet Caglar Kaya

Mehmet Caglar Kaya ( email )

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

HOME PAGE: http://https://www.ifn.se/eng/people/affiliated_researchers/mehmet-caglar-kaya

Lars Persson (Contact Author)

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

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