Dec 15, 2009
When does start-up innovation spur the gale of creative destruction? (Gans, Hsu and Stern, 2002)
When does start-up innovation spur the gale of creative destruction? (Gans, Hsu and Stern, 2002)
Start-ups can either
- Collaborate (licensing, strategic alliances, acquisition) or
- Compete with incumbents – sometimes fueling/causing creative destruction.
Main Question: How do economic factors shape the relative returns to cooperation versus competition?
Looking at start-ups which have have successfully commercialised a technology, either independently or through cooperation with external R&D funding from either private venture capital (VC) (55 firms) or the Small Business Innovation Research program (SBIR) (63 firms).
Findings – Three Factors:
- Strength of intellectual property rights (significant results) affects both abosolute (regardless of strategy) and relative (cooperation vs competition) returns. Increasing IPR strength increases the relative benefits to cooperation for start-ups. Also, certain types of IPR such as patents (clear technical details and legal ownership) reduce cooperation-related transaction costs.
- Intermediaries (occasionally significant at 10%) The presence of intermediaries (brokers, VCs etc) that lower the search and transaction costs related to finding and dealing with incumbents increases the relative returns to cooperation for start-ups.
- Sunk costs of market entry (occasionally significant at 10%)
To the extent that incumbent owned complementary assets (brand names, distribution channels etc – see also Teece 1986) are difficult or costly to imitate/acquire, start-up incentives to cooperate (compete) increase (decrease).
