-return characteristics of the selected innovation project and the mode of commercialization chosen by entrepreneurs (market entry versus sale …

aggressive development of a basic innovation by better informed venture-backed firms is used as a signaling device to enhance the … sale price of the innovation. We then show that incumbents can undertake early, preemptive, acquisitions to prevent such … signaling driven overinvestment, despite the risk of buying a non-productive innovation. Therefore, to exist in equilibrium …

option of selling to an incumbent increases the innovation incentives for entrepreneurs when the network effects are strong … not necessarily restrict the innovation incentives and that network effects promote acquisitions over entry. …