Creative Destruction and Productive Preemption

We develop a theory of commercialization mode (entry or sale) of entrepreneurial inventions into oligopoly, and show that an invention of higher quality is more likely to be sold (or licensed) to an incumbent due to strategic product market e¤ects on the sales price. Moreover, preemptive acquisitions by incumbents are shown to stimulate the process of creative destruction by increasing the entrepreneurial e¤ort allocated to high-quality invention projects. Using detailed data on patents granted to small …rms and individuals, we …nd evidence that high-quality inventions are often sold, and that they are sold under bidding competition. Keywords: Acquisitions, Entrepreneurship, Innovation, Start-ups, Patent, Ownership, Quality JEL classi…cation: G24, L1, L2, M13, O3 We have bene…tted from useful comments from Marcus Asplund, Magnus Henrekson, Jim Levinsohn, Hodaka Morita, Sören-Bo Nielsen and Marie Thursby, and participants in seminars at IIOC Conference 2009, IFN Stockholm Conference 2007, Copenhagen Bussines School, Tilburg University and Royal Institute of Technology (Stockholm). Financial support from Jan Wallander’s and Tom Hedelius’Research Foundation is gratefully acknowledged. This paper was written within the Gustaf Douglas Research Program on Entrepreneurship. Email: [email protected], [email protected].