Beggar thy high-tech neighbour?

Firms threatened by business incubators strive to 'stifle competition'. Hannah Fearn reports

April 1, 2010

The growth of university "business incubators" is encouraging "anti-competitive" behaviour among dominant high-tech companies in the UK, a University of Oxford economist says.

University business incubators are programmes designed to accelerate the development of start-ups through an array of support services. In a paper presented this week at the Royal Economic Society's annual conference, Christian Helmers, lecturer in economics at Wolfson College, Oxford, says their emergence has led to a significant increase in the number of patent applications from nearby firms.

Instead of this being positive, he argues, it is indicative of attempts to stifle competition.

The paper, "The effect of market entry on innovation: Evidence from UK university incubators", says the increase in patenting shows businesses are responding to the threat by taking steps to signal their own strength, or by blocking new businesses from patenting products similar to their own.

Mr Helmers' research found that the effect is stronger the closer the existing business is to the university business incubator, with the strongest impact occurring within a 5km to 15km radius.

"My findings suggest that (the emergence of new firms from incubators) spurs incumbent patenting," the paper says. "Moreover, the effect is attenuated by the geographical distance between the entrant and incumbent. The closer an incumbent firm is to an entrant, the stronger the effect.

"This behaviour may serve as a signalling device to deter other potential entrants, as a way of anticipating knowledge leakage by making information accessible to the public through patent applications, or as a response to increased competition."

But scholars working in business incubation at Oxford disagreed with the findings.

David Kingham, managing director of Oxford Innovation, which supports high-tech start-ups, called the conclusions "nonsense".

He said: "Most patenting companies and incubators are not direct competitors. They are patenting more because there are more patent agents around and it's easier.

"I think the conclusion is nonsense, but the observation is very interesting."

Tom Hockaday, managing director of Isis Innovation, Oxford's technology-transfer company, also questioned the interpretation.

"It seems to me that there could be a rather more positive take on all of this in two ways," he said.

"One could be that universities create new businesses that stay close by and file lots of patents because they are innovative.

"The other could be that universities attract existing and new technology companies to locate close to them."

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