Acquisition through innovation tournaments in high-tech industries: a comparative perspective

And the winner is—Acquired. Entrepreneurship as a contest yielding radical innovations

“…This approach has been applied in similar exploratory research settings and is also advocated methodologically (e.g., Miles and Huberman, 1994). Through our interviews, we study 10 A brief description of innovation in the EDA industry is also contained in Kleer and Wagner (2013).…”

“…They modeled in detail the negotiations between an incumbent and an entrant over an innovation and showed how the acquisition price depends crucially on the strength of intellectual property protection and on the possibility of the entrant to enter the product market. This, in turn, determines the two firms' payoffs from and incentives to conduct R&D. Kleer and Wagner (2013) model competition between small and large firms for an exclusive patent, assuming R&D efficiency advantages for small firms and exploitation advantages for large firms. Among other things they derive, and confirm empirically, that acquisitions increase overall innovation output.…”

“…Yet, as Baumol (2010) points out, a cooperative agreement between an entrant and an incumbent regarding commercialization, in general should be superior both because of increased market power and because entrants typically lack the broad resource bases of incumbents. Reflecting this point, some more recent theoretical studies allow for a successful entrant to be acquired by (or to license its invention to) an incumbent (Gans and Stern, 2000;Kleer and Wagner, 2013).…”

High risk or low cost - Dichotomous choices of R&D strategy by startups in markets for technology

“…The authors find that the parties' incentives to invest depend strongly on their respective bargaining power in licensing negotiations, which, in turn, depends on the strength of intellectual property rights, the incumbent's threat to develop its own solution, and the young firm's possibilities of product market entry. Kleer and Wagner (2013) assume that small firms are more efficient in R&D, and large firms are better in exploitation. As a result, small firms invest more in R&D. With sufficiently large differences in efficiency, large firms refrain from performing R&D and rely exclusively on acquisitions.…”

“…This paper contributes to three streams of literature. The first is the aforementioned literature on R&D competition between startups and incumbents when acquisition of the former is an option (Gans and Stern 2000, Henkel et al 2015, Kleer and Wagner 2013, Phillips and Zhdanov 2012. Our research introduces a dichotomy of the startups' R&D strategies and hence of the acquisitions, thus adding clarity to the strong heterogeneity of technology-focused acquisitions.…”