Acquisitions for Sleep

Pehr-Johan Norbäck 1 , Charlotta Olofsson 2  and Lars Persson 1
  • 1 Research Institute of Industrial Economics, Grevgatan 34, Stockholm, Sweden
  • 2 Lund University and Research Institute of Industrial Economics, Grevgatan 34, Stockholm, Sweden
Pehr-Johan Norbäck, Charlotta Olofsson
  • Lund University and Research Institute of Industrial Economics, Grevgatan 34, Stockholm, 10215, Sweden
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and Lars Persson
  • Corresponding author
  • Research Institute of Industrial Economics, Grevgatan 34, Stockholm, 10215, Sweden
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Within the policy debate, there is a fear that large incumbent firms buy small firms’ inventions to ensure that they are not used in the market. We show that such “acquisitions for sleep” can occur if and only if the quality of a process invention is small; otherwise, the entry profit will be higher than the entry-deterring value. We then show that the incentive for acquiring for the purpose of putting a patent to sleep decreases when the intellectual property law is stricter because the profit for the entrant then increases more than the entry-deterring value does.

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The B.E. Journal of Economic Analysis & Policy (BEJEAP) is an international forum for scholarship that employs microeconomics to analyze issues in business, consumer behavior and public policy. Topics include the interaction of firms, the functioning of markets, the effects of domestic and international policy and the design of organizations and institutions.