Negotiating for the Market
In a dynamic environment where underlying competition is "for the market," this paper examines what happens when entrants and incumbents can instead negotiate for the market. For instance, this might arise when an entrant innovator can choose to license to or be acquired by an incumbent firm; i.e., engage in cooperative commercialization. It is demonstrated that, depending upon the level of firms' potential dynamic capabilities, there may or may not be gains to trade between incumbents and entrants in a cumulative innovation environment; that is, entrants may not be adequately compensated for losses in future innovative potential. This stands in contrast to static analyses that overwhelmingly identify positive gains to trade from such cooperation.
This paper replaces and builds on a previously circulated paper entitled "Start-Up Commercialisation Strategy and Innovative Dynamics." I thank Ashish Arora, Bruno Cassiman, Nisvan Erkal, Thomas Hellmann, Michael Ryall, Suzanne Scotchmer, Yossi Speigel, Scott Stern, and participants at the NBER Entrepreneurship Strategy and Structure Conference (Jackson, WY, 2007), the Australasian Econometric Society Meetings (Alice Springs, 2006), IIO Conference (Savannah, GA, 2007), FEN Conference on Ownership, Competition and Innovation (Stockholm, 2010), NBER Summer Institute 2010, University of Virginia, UCLA and the University of Michigan and the Intellectual Property Research Institute of Australia (IPRIA) and an ARC Discovery Grant for financial assistance. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.