Negotiating for the Market

Joshua S. Gans
NBER Working Paper No. 20559
Issued in October 2014
NBER Program(s):   PR


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.


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