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The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists and Oligopolists

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Author Info
Norbäck, Pehr-Johan
Persson, Lars

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Abstract

Exit of venture-backed firms often takes place through sales to large incumbent firms. We show that in such an environment, venture-backed firms have a stronger incentive to develop basic innovations into commercialized innovations than incumbent firms, due to strategic product market effects. This will increase the price for basic innovations, thereby triggering more such innovations by entrepreneurs. Consequently, a venture capital market implies that more innovations are created, and that these become better developed. Moreover, we show that to exist in equilibrium, venture capitalist must be substantially more efficient, otherwise incumbents will preempt venture capitalists entering the market by acquiring basic innovations

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5449.

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Date of creation: Jan 2006
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Handle: RePEc:cpr:ceprdp:5449

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Related research
Keywords: acquisitions; entrepreneurship; innovation; venture capital;

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Find related papers by JEL classification:
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
O3 - Economic Development, Technological Change, and Growth - - Technological Change

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Friberg, Richard & Norbäck, Pehr-Johan & Persson, Lars, 2008. "Privatization, Investment and Ownership Efficiency," Working Paper Series 744, Research Institute of Industrial Economics. [Downloadable!]
  2. Norbäck, Pehr-Johan & Persson, Lars, 2006. "The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists and Oligopolists," CEPR Discussion Papers 5449, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Fabrizi, Simona & Lippert, Steffen & Norback, Pehr-Johan & Persson, Lars, 2007. "Venture Capitalists, Asymmetric Information and Ownership in the Innovation Process," MPRA Paper 6265, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Stennek, Johan, 2007. "Exclusive Quality - Why Exclusive Distribution May Benefit the TV Viewers," CEPR Discussion Papers 6072, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Friberg, Richard & Norbäck, Pehr-Johan & Persson, Lars, 2008. "Getting a Better Price: Strategic Behaviour before Changes in Ownership of Corporate Assets," Working Paper Series 777, Research Institute of Industrial Economics. [Downloadable!]
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