nep-tid 2011-04-16 papers

on Technology and Industrial Dynamics

Issue of 2011‒04‒16
two papers chosen by
Rui Baptista
Technical University of Lisbon

Acquisitions, Entry and Innovation in Network Industries By Norbäck, Pehr-Johan; Persson, Lars; Tåg, Joacim
Innovation and Corporate Dynamics: A Theoretical Framework By Massimo, Riccaboni; Jakub, Growiec; Fabio, Pammolli

Acquisitions, Entry and Innovation in Network Industries

By:	Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN)); Tåg, Joacim (Research Institute of Industrial Economics (IFN))
Abstract:	Why do so many high-priced acquisitions of entrepreneurial firms take place in network industries? We develop a theory of commercialization (entry or sale) in network industries showing that high equilibrium acquisition prices are driven by the incumbents' desire to prevent rivals from acquiring innovative entrepreneurial firms. This preemptive motive becomes more important when there is an increase in network effects. A consequence is higher innovation incentives under an acquisition relative to entry. A policy enforcing strict compatibility leads to more entry, but can be counterproductive by reducing bidding competition, thereby also reducing acquisition prices and innovation incentives.
Keywords:	Acquisitions; Commercialization; Compatibility; Entry; Network effects; Innovation; R&D; Regulation
JEL:	L10 L15 L26 L50 L86 O31
Date:	2011–04–06
URL:	http://d.repec.org/n?u=RePEc:hhs:iuiwop:0867&r=tid

Innovation and Corporate Dynamics: A Theoretical Framework

By:	Massimo, Riccaboni; Jakub, Growiec; Fabio, Pammolli
Abstract:	We provide a detailed analysis of a generalized proportional growth model (GPGM) of innovation and corporate dynamics that encompasses the Gibrat’s Law of Proportionate Effect and the Simon growth process as particular instances. The predictions of the model are derived in terms of (i) firm size distribution, (ii) the distribution of firm growth rates, and (iii-iv) the relationships between firm size and the mean and variance of firm growth rates. We test the model against data from the worldwide pharmaceutical industry and find its predictions to be in good agreement with empirical evidence on all four dimensions.
Keywords:	Business firm size; firm growth distribution; Gibrat’s Law; Pareto distribution; lognormal distribution; size-variance relationship.
JEL:	L25 L65 L11 C49
Date:	2011–03–26
URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:30046&r=tid

This nep-tid issue is ©2011 by Rui Baptista. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.

General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.

NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.