In industries with network effects, incumbents' installed bases create barriers to entry that discourage entrepreneurs from developing new innovations. Yet, entry is not the only commercialization route for entrepreneurs. We show that the option of selling to an incumbent increases the innovation incentives for entrepreneurs when the network effects are strong and incumbents compete to preemptively acquire innovations. Thus, we establish that network effects and installed bases do not necessarily restrict the innovation incentives and that network effects promote acquisitions over entry.
|Peer-reviewed scientific journal||International Journal of Industrial Organization|
|Number of pages||12|
|Publication status||Published - 11.2014|
|MoE publication type||A1 Journal article - refereed|
- Network effects