Product innovation and firms' ownership

Jaskold Gabszewicz, Jean;Tarola, Ornella
(2012) Economics of Innovation and New Technology — Vol. 21, n° 4, p. 323-343 (2012)

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Authors
  • Jaskold Gabszewicz, JeanUCLouvain
    Author
  • Tarola, OrnellaUniversity of Rome 'La Sapienza'
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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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Jaskold Gabszewicz, J., & Tarola, O. (2012). Product innovation and firms’ ownership. Economics of Innovation and New Technology, 21(4), 323-343. https://doi.org/10.1080/10438599.2011.579478 (Original work published 2012)