Start-up acquisitions, strategic R&D, and the entrant's and incumbent's direction of innovation

Esmée S.R. Dijk; José L. Moraga-González; Evgenia Motchenkova

doi:10.1111/jems.12606

Start-up acquisitions, strategic R&D, and the entrant's and incumbent's direction of innovation

Esmée S.R. Dijk
, José L. Moraga-González^*
, Evgenia Motchenkova

^*Corresponding author for this work

Research output: Contribution to Journal › Article › Academic › peer-review

Abstract

An entrant and an incumbent allocate their research funds across a rival and a non-rival market. The prospect of an acquisition distorts both players' incentives to allocate funding. Allowing for acquisitions may improve both players' innovation direction and consumer surplus. Under conditions, the incumbent, anticipating monopolization rents in the rival market, moves R&D towards that market. This “incumbency for buyout” effect lowers the rents the entrant obtains from the contestable market, which gives it incentives to move R&D resources away from the rival market. Such strategic interaction in the R&D market has implications for the assessment of start-up acquisitions.

Original language	English
Pages (from-to)	428-456
Number of pages	29
Journal	Journal of Economics and Management Strategy
Volume	34
Issue number	2
Early online date	29 Jul 2024
DOIs	https://doi.org/10.1111/jems.12606
Publication status	Published - May 2025

Bibliographical note

Publisher Copyright:
© 2024 The Author(s). Journal of Economics & Management Strategy published by Wiley Periodicals LLC.

Funding

A previous version of this paper circulated as \u201CStart-up Acquisitions and the Entrant's and Incumbent's Innovation Portfolios.\u201D We are grateful to two anonymous reviewers, an associate editor, and the editor of the journal for constructive comments. We also thank Stephane Caprice, Serge Moresi, Florian Sz\u00FCcs, Chengsi Wang, Bert Willems, and, especially, Luca Sandrini for helpful comments on an earlier draft. This paper has also benefited from presentations at the Workshop on the Economics of Startup Acquisitions at University of Bern (April 25\u201326, 2024), Katholieke Universiteit Leuven, the Netherlands Authority for Consumers and Markets (ACM), TILEC (Tilburg University), the joint Frankfurt School of Finance and Management and Goethe University Frankfurt seminar, Toulouse Business School, The 15th Berlin IO day, Jornadas de Econom\u00EDa Industrial 2023 (Bilbao), EARIE 2023 (Rome), CRESSE 2023 (Rhodes), and the VII Workshop on Knowledge, Innovation and Internationalization Strategies (University of Valencia, 2022).

Funders
Universiteit van Tilburg
TILEC
Australian College of Midwives
KU Leuven
University of Bern
Toulouse Business School
Netherlands Authority for Consumers and Markets

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Start-up acquisitions, strategic R&D, and the entrant's and incumbent's direction of innovation

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