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Product innovation and firms’ ownership

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  • Jean Gabszewicz
  • Ornella Tarola

Abstract

This paper explores (i) the incentives for an incumbent firm to acquire an entrant willing to sell a product innovation rather than openly competing with this entrant, and (ii) in case of acquisition, the incentives to sell simultaneously both the existing products and the new one rather than specializing on a single variant. We prove that, in some circumstances, an incumbent firm can find it profitable to make an acquisition proposal to the entrant. Nevertheless, in this acquisition scenario, a product proliferation strategy is never observed at equilibrium. Furthermore, while being available for sale, sometimes the innovation simply remains unexploited.

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  • Jean Gabszewicz & Ornella Tarola, 2012. "Product innovation and firms’ ownership," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(4), pages 323-343, April.
    • Handle: RePEc:taf:ecinnt:v:21:y:2012:i:4:p:323-343
    DOI: 10.1080/10438599.2011.579478
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    Cited by:

    1. Ornella Tarola, 2011. "Preemptive acquisition and downgrading innovation," Economics Bulletin, AccessEcon, vol. 31(2), pages 1520-1529.
    2. Arijit Mukherjee, 2014. "Licensing under convex costs," Journal of Economics, Springer, vol. 111(3), pages 289-299, April.

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