We analyze a dynamic model of repeated innovation where inventors may either be acquired by an incumbent or else resist takeover and challenge for leadership. In the short run, acquisitions always spur innovation because of the invention-for-buyout effect. In the longer run, however, they may stifle it because of a countervailing effect, the entrenchment of monopoly. The latter occurs when the incumbent's dominance depends on past levels of activity and is therefore reinforced by recurrent acquisitions. We show that if the entrenchment effect is sufficiently strong, forward-looking policymakers should prohibit acquisitions in anticipation of the long-run negative impact on innovation. This argument sets out a new theory of harm that can be used to block acquisitions that could otherwise go unchallenged.

Acquisitions, innovation and the entrenchment of monopoly

Polo, Michele
In corso di stampa

Abstract

We analyze a dynamic model of repeated innovation where inventors may either be acquired by an incumbent or else resist takeover and challenge for leadership. In the short run, acquisitions always spur innovation because of the invention-for-buyout effect. In the longer run, however, they may stifle it because of a countervailing effect, the entrenchment of monopoly. The latter occurs when the incumbent's dominance depends on past levels of activity and is therefore reinforced by recurrent acquisitions. We show that if the entrenchment effect is sufficiently strong, forward-looking policymakers should prohibit acquisitions in anticipation of the long-run negative impact on innovation. This argument sets out a new theory of harm that can be used to block acquisitions that could otherwise go unchallenged.
In corso di stampa
Denicolò, Vincenzo; Polo, Michele
File in questo prodotto:
File Dimensione Formato  
Nuovo_Entrenchment_RR_Completo.pdf

accesso aperto

Descrizione: article
Tipologia: Pdf editoriale (Publisher's layout)
Licenza: Copyright dell'editore
Dimensione 834.56 kB
Formato Adobe PDF
834.56 kB Adobe PDF Visualizza/Apri
ACC_Denicolo.pdf

non disponibili

Descrizione: accettazione
Tipologia: Allegato per valutazione Bocconi (Attachment for Bocconi evaluation)
Licenza: NON PUBBLICO - Accesso privato/ristretto
Dimensione 100.25 kB
Formato Adobe PDF
100.25 kB Adobe PDF   Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/4069880
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact