### Abstract

Original language | English |
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Publication date | 2018 |

Number of pages | 30 |

Publication status | Published - 2018 |

Event | DRUID18 Conference - Copenhagen Business School, Frederiksberg, Denmark Duration: 11 Jun 2018 → 13 Jun 2018 Conference number: 40 https://conference.druid.dk/Druid/?confId=57 |

### Conference

Conference | DRUID18 Conference |
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Number | 40 |

Location | Copenhagen Business School |

Country | Denmark |

City | Frederiksberg |

Period | 11/06/2018 → 13/06/2018 |

Internet address |

### Cite this

*High Risk or Low Cost: Dichotomous Choices of R&D Strategy by Startups in Markets for Technology*. Paper presented at DRUID18 Conference, Frederiksberg, Denmark.

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**High Risk or Low Cost : Dichotomous Choices of R&D Strategy by Startups in Markets for Technology.** / Henkel, Joachim; Rønde, Thomas.

Research output: Contribution to conference › Paper › Research › peer-review

TY - CONF

T1 - High Risk or Low Cost

T2 - Dichotomous Choices of R&D Strategy by Startups in Markets for Technology

AU - Henkel, Joachim

AU - Rønde, Thomas

PY - 2018

Y1 - 2018

N2 - Technology-focused acquisitions of startups by incumbents are highly diverse, comprising radical but also incremental innovations. We build a model of R&D competition between an incumbent and a startup to explain this diversity. Each player chooses investment level and success probability, or risk, of its project. After outcome realization, the incumbent commercializes the most valuable project, and, where necessary, acquires the startup to this end. We find that two locally optimal strategies for the startup can exist, characterized respectively by higher risk or lower cost than the incumbent’s equilibrium strategy. Depending on the R&D technology, either of them may be the startup’s globally optimal strategy. With two startups, numerical analysis confirms this finding. The intuition behind our results is that a startup pursuing a high risk strategy aims at technological superiority, while one following a low cost strategy banks on having the only successful R&D project. Our model thus suggests a dichotomy of technology-focused acquisitions of startups by incumbents.

AB - Technology-focused acquisitions of startups by incumbents are highly diverse, comprising radical but also incremental innovations. We build a model of R&D competition between an incumbent and a startup to explain this diversity. Each player chooses investment level and success probability, or risk, of its project. After outcome realization, the incumbent commercializes the most valuable project, and, where necessary, acquires the startup to this end. We find that two locally optimal strategies for the startup can exist, characterized respectively by higher risk or lower cost than the incumbent’s equilibrium strategy. Depending on the R&D technology, either of them may be the startup’s globally optimal strategy. With two startups, numerical analysis confirms this finding. The intuition behind our results is that a startup pursuing a high risk strategy aims at technological superiority, while one following a low cost strategy banks on having the only successful R&D project. Our model thus suggests a dichotomy of technology-focused acquisitions of startups by incumbents.

M3 - Paper

ER -