Schumpeterian Competition Research Articles

Antitrust regulation, innovation and industry dynamics

This paper presents a framework for identifying the impacts of antitrust regulation on innovation and industry dynamics. I consider two inventor types: multi-product incumbent firms and startups not yet in product markets. They pursue external innovation, which results in Schumpeterian competition; and internal innovation, which incumbent firms use to refine current products in their portfolios. I find that weaker regulation gives incumbent firms greater market power to block competition, reducing incentives for external innovation, but raising incentives for internal innovation. Less heavy-handed regulation slows industry dynamics and raises industrial concentration; however, more lenient regulation may increase aggregate innovation depending on parameter value.

An Analysis on Neoclassical and Schumpeterian Approaches: Competition and Human Behavior

The aim of this study is to scrutinize the close relationship between the type of competition and the conceptualization of human behavior by taking into consideration neoclassical and Schumpeterian competition approaches. To this end, the linkages between static competition and methodological individualism, and dynamic competition and institutional individualism are discussed. While methodological individualism is embraced by the neoclassical approach in parallel to the static analysis of perfect competition, Schumpeter analyzes human behavior within the framework of institutional individualism, and embraces dynamic competition. This study shows that perfect competition of the neoclassical approach does not take into consideration the very crucial characteristics of capitalism, and its conceptualization of human behavior falls short of explaining real world phenomena and cannot link social, historical and economic reality. Most importantly, the human being wih his/her real incentives and motives are absent from the analysis in the neoclassical approach. Since economic reality cannot be analyzed independent of society, history and social individual, Schumpeter's institutional individualism provides a richer analytical framework. To our knowledge, the relationship established in this study between competition and human behavior is a novel approach and contribution.

Schumpeterian competition in a Lucas economy

We model a rent-seeking game where agents experiment with a new technology and compete for claims to a consumption stream. We characterize how creative destruction affects risk, wealth, and asset prices. Competition not only imposes excessive disruption risk on existing assets and higher technological uncertainty, it also increases the wealth duration (the weighted-average maturity of wealth). Because of hedging motives, a complementarity between wealth duration and technological uncertainty decreases systematic risk. If competition is sufficiently intense, a negative risk premium may arise. The model generates price paths consistent with boom-bust patterns and transient episodes of negative expected excess returns. We show that Schumpeterian competition may worsen income inequality.

Walk and chew gum: A demand and supply illustration of macro and micro net-zero initiatives for the automobile industry

This paper draws upon several related perspectives not necessarily following a single assumed methodology in addressing climate changes issues for the automobile industry. It utilizes economists' simple demand and supply tools in illustrating how net-zero initiatives can be considered from a “micro” as well as a “macro” perspective. Drawing this distinction can illustrate a difference between green car and green certificate initiatives for an agenda for the industry's drive to net zero. Macro net-zero is almost universally agreed and implemented in many industries of the world including the automobile industry. A pragmatic approach for micro net-zero arguably may be additionally needed, as we are likely to see fossil fuel driven vehicles coexisting with alternative energy vehicles during an unavoidable transitory phase-out period. As an illustration of benchmark carbon pricing method, a CO2 auditing exercise is conducted based on specific car information retrieved from the US Department of Energy dataset. We found under quite reasonable assumptions, green certificate fee calculated specific to a new car in dealership showroom would not be high in absolute as well as in percentage term compared to the price of the car. Furthermore, if green fees can be monitored to be spent on tree planting agencies, an acreage-tree equivalent of the green fee can also be calculated, thus enabling the pricing mechanism to be integrated with green marketing. The importance of marketing as a means to privatize a Pigouvian tax is recommended, pointing out the notion of augmented product inclusive of a green certificate for vehicles may contribute to net-zero. The proposed framework stated in the context of integrated perspectives can be useful for static efficiency while also noting the limitation of market economics towards contributing to dynamic efficiency, which is currently going through a process of Schumpeterian competition. The framework helps clarify energy policy issues that have now mixed discussions of old (i.e., fossil fuel) and new technology (i.e., alternative energy). This micro net zero perspective may not be limited to the automobile industry.

Lopsided Schumpeterian competition and the superstar firm phenomenon in OLED flat-panel displays

ABSTRACT Lopsided Schumpeterian competition and the emergence of ‘superstar’ firms are examined in the flat-panel display industry, where the difficulty of commercialising active-matrix OLED (AMOLED) flat panels led to patterns of innovation and competition vastly dissimilar to those that had prevailed in Liquid Crystal Display (LCD) flat panels. Applying the concept of a Schumpeterian ‘Ultra-Mark II’ technological regime, the study sheds light on how superstar firms build industry dominance through R&D and the building of exclusive supplier networks when their industry (or a certain segment of it) morphs into a quasi-monopolistic type of arena.

An implementation on Python of the Classical Nelson and Winter Models

This paper addresses the computational implementation in Python of the family of classical Schumpeterian Competition models developed by Nelson and Winter. A simple one-shot model is presented as a seed for the development of evolutionary dynamic models. Then, a parallel development between theory and computational implementation using the inheritance capabilities present in Python is done, in order to contemplate innovation, system dynamics, adaptive innovation policies and patents. The results of the original work are compared to the results found throughout the development of this work.

Antitrust Law & Economics Under Attack: Populism Versus Innovation

The economic analysis of antitrust laws is on the wane. The Chicago School influentially developed an antitrust approach with the principle of economic efficiency as the North Star of enforcement analysis. Robert Bork has seminally singled out The Antitrust Paradox of his time: Antitrust suppressed the competition it should foster. Conducive to an economic analysis of antitrust laws, “Borkian” antitrust has nonetheless experienced continuous criticisms. Recently, powerful assaults revived an old antitrust approach–the populist approach. Self-proclaimed the “Neo-Brandeisians” after Justice Louis D. Brandeis, who extolled small businesses and mocked the “Curse of Bigness,” antitrust populism represents a paradigm-shift away from antitrust law & economics in favor of greater discretionary power in redesigning markets for the sake of a market competition made of small business units. This article argues that the limits of the Borkian antitrust do not justify embracing the populist Brandeisian antitrust. Antitrust is at a crossroads: It can reject Brandeisian antitrust without necessarily reverting to a passe Borkian antitrust. Economic analysis of antitrust laws remains relevant only if we take efficiency seriously–namely, including allocative and productive efficiencies and, most importantly, dynamic efficiency (i.e., innovation). An economic analysis of antitrust laws relevant to today’s (and tomorrow’s) economy can only be innovation-centric. Dynamic efficiency in the antitrust analysis would avoid the misguided populist antitrust approach, but it would also frame antitrust analysis in line with Schumpeterian principles. If innovation matters, Schumpeterian competition needs to be the cornerstone of a renewed economic analysis of antitrust laws.

Role of Latecomers’ Imitation in Overtaking Industry Leaders under Schumpeterian Competition

Since Schumpeter emphasized the importance of innovation for latecomers to leapfrog and overtake industry leaders, strategy research has viewed innovation as the primary impetus for leadership change. On the other hand, imitation in this literature has been portrayed as a strategy by which a latecomer can narrow the gap with, but not surpass, leaders. Thus far, little research has examined whether imitation can help latecomers with disadvantageous positions catch up with and eventually overtake leaders. By employing a computational model, we find that latecomers who pursue innovation alone are unlikely to overtake leaders, whereas latecomers who mix innovation and imitation are more likely to do so. When the latecomer allocates all its R&D budget to innovative R&D, it is likely to run out of capital quickly and be unable to continue to invest in R&D. A mix of innovation and imitation better maintains a steady cash stream, helping the latecomer continue to invest in R&D and thereby leaving room for leapfrogging opportunities.

The Limits of Capitalism: the Rent-Seeking Society as a Global Alternative

The natural limits of capitalism are expressed not only in the global suspension of economic growth, which has been considered endless. It is also a crisis of its non-economic legitimization, of those political forms that have made possible smoothing of inequality generated by capitalism. The nation-state, the model of social state and representative democracy were the mechanisms of access for the most citizens to the fruits of the economic growth generated by capitalism. However, the growth limits of available public resources did not significantly change the strategies of political and economic elites. Attempts to redistribute the non-growing public pie were expressed in neoliberal rhetoric; devaluation of the political nation model as co-citizenship; reduction of forms of social policy; the crisis of democracy, expressed in a return to its narrow interpretation as Schumpeterian competition of the elites. The tendencies related to the fact that the elites would like to keep receiving an additional piece of the public pie at the expense of the majority, reinforce inequality and deprive capitalism of convincing value-institutional regulation that have earlier ensured its stable existence. There is a growing demand in society for return to a more egalitarian model of the distribution of public resources. Its options are less and less associated with capitalism as a society dominated by market metaphor that ideologically represents modernity, but for many reasons has ceased to provide acceptable prospects for the majority. It seems that rental society is becoming an alternative to capitalism without economic growth and with a shrinking labor market. In the rental society, the key mechanisms of stratification and access to resources are again moving from the market to the nation-state, non-market types of public exchanges are strengthening, and social policy is striving for a model of basic unconditional income. The room for social construction is reduced to local utopias and virtues of various minorities, while populism becomes the dominant form of political discourse, which instead of decaying economic classes turns to the majority and is compatible with both the right and the left political value systems.

Big-Tech Mergers: Schumpeterian Competition, Innovation, and the Treatment of Emerging Competitors

There is broad concern that merger policy toward Big Tech has been too lenient. Big Tech typically operates in markets characterized by innovation-driven “competition for the market.” I show that this fact provides a rationale for heightened scrutiny of incumbents’ acquisitions of emerging or potential competitors. I also address the widespread argument that permissive merger policy promotes innovative entry by facilitating entry for buyout. I show that permissive merger policy can also discourage entrant innovation. One way is by diminishing entrants’ incentives to invest in marginal product improvements when such improvements reduce the gains from merger. A second way is by facilitating incumbency for buyout, under which an incumbent makes investments in order to extract rents from an entrant through merger.

Technological Opportunity, Technological Leadership Change, and Latecomers’ R&D Resource Allocation between Innovation and Imitation

This study examines when and how latecomers can surpass incumbents in technological capabilities with a focus on the role of technological opportunity. There is disagreement in theoretical prediction and evidence on whether technological opportunity is conducive to technological leadership change. To reconcile this disagreement, we build a computational model of Schumpeterian competition in which incumbents and latecomers compete with innovation and imitation R&D. First, the results suggest that technological opportunity indeed has two opposing effects (i.e., positive and negative) on technological leadership change, and these effects create an inverted-U relationship. When there are few opportunities, leadership change is unlikely to happen because latecomers will rarely achieve a breakthrough. Additionally, abundant opportunities may not be conducive to leadership change either because incumbents move forward faster than latecomers. We further examine why these opposing effects exist by exploring latecomers’ R&D allocation between innovation and imitation. The results highlight that imitation R&D is a necessary condition for latecomers to leverage technological opportunity (i.e., enabling the positive effect of technological opportunity) and overcome their disadvantages in a technologically munificent environment (i.e., mitigating the negative effect of technological opportunity).

The Evolution of an Industrial Sector with a Varying Degree of Roundaboutness of Production

The evolutionary model presented in this paper depicts an industrial sector with a varying degree of economic roundaboutness, i.e., vertical division of labor between producers and users of different types of intermediate products that are ultimately used for the production of a single final product. To include this vertical aspect of industrial dynamics, the model adds the concept of production trees to the evolutionary models of Schumpeterian competition. The specification of this concept suggests the use of the notions of graph theory and the related algorithms of computer science in the treatment of industrial novelty, including structural innovations. Although the model is developed within the Nelson and Winter tradition, the introduction of the Austrian issue of roundaboutness implies a major extension of the research agenda, including production-structure innovations, the emergence and functioning of markets for intermediate products, ways of coping with the instability of upstream markets, the spread of the effects of an upstream innovation, and the measurement of the degree of roundaboutness and of overall productivity. The model reflects a Schumpeterian version of the Boehm-Bawerkian vision of the emergence of increased long-term roundaboutness of production. The Schumpeterian approach implies an innovation- and entrepreneur-driven process of vertical disintegration and reintegration.

Can Technological Innovation Improve the Survival of Start-ups? A Study of Theory and Experience

Technological innovation is the source of power to enhance the core competitiveness and improve the survival and development of enterprises. In recent years, our government has encouraged enterprises to innovate and start businesses, vigorously advocating mass entrepreneurship and innovation”, and the vigor of innovation and entrepreneurship has burst out. A large number of high-tech enterprises have risen rapidly. To some extent, technological innovation has become a common choice for enterprises to survive and develop. However, while technological innovation enhances the competitiveness of enterprises, it also makes enterprises face the risk of market withdrawal. According to the statistics of the database of all state-owned enterprises and above-scale non-state-owned industrial enterprises of the National Bureau of Statistics, the average survival time of Chinese manufacturing enterprises was about 6.64 years from 1998 to 2011, with an average annual exit rate of 17%, and the average survival time of enterprises with scientific and technological innovation activities was about 6.82 years, of which nearly 50% of innovative enterprises were before entering the market. Within six years, less than 10% of innovative enterprises have survived for 10 years. The high market exit rate is a prominent problem faced by Chinese enterprises in the period of transition, and technological innovation affects the survival of enterprises through various channels. Therefore, it is an important research topic to reveal the mechanism of technological innovation affecting the survival of manufacturing enterprises and provide empirical evidence with Chinese characteristics.Based on the construction of a Schumpeterian competition and innovation theory model, this article incorporates the scale effect of R&D investment and market concentration into the analytical framework, selecting the Weibull survival risk model to empirically test the impact of technological innovation on the survival of start-ups by using the data of all state-owned enterprises and above-scale non-state-owned industrial enterprises of the National Bureau of Statistics. We find that there is an inverted U-shaped relationship of diminishing scale effects between R&D intensity and enterprise survival. Moreover, the impact of R&D intensity and market concentration on the survival of enterprises is complementary. Given the intensity of R&D, the survival time of enterprises is longer if it is in a more concentrated industry. Finally, the relationship between technological innovation and enterprise survival is also affected by the technical level of the industry and the ownership structure of enterprises. The survival risk rate of enterprises in the high-tech industry is lower, and the level of R&D of state-owned enterprises is higher, but the survival risk rate is higher than that of non-state-owned enterprises. These findings enrich the research on the relationship between technological innovation and enterprise survival, deepen our understanding of the impact of technological innovation on the survival of enterprises, and have theoretical and empirical implications for government policies.

The Dynamics of Learning and Competition in Schumpeterian Environments

In this study, we examine the nature of Schumpeterian competition between entrants and incumbents. We argue that incumbents may respond to the threat of entry by either attacking the entrant or trying to learn from it, and that entrants, in turn, may react by either reciprocating the incumbent’s advances or retreating from it. Putting these competitive choices together, we develop a framework of four distinct potential scenarios of Schumpeterian competition. In particular, we emphasize a scenario we term creative divergence, wherein incumbents try to learn from entrants and build on their technologies, but their investments to do so cause entrants to retreat, resulting in diminishing returns to learning investments by incumbents. Exploratory analyses of the U.S. cardiovascular medical device industry find patterns consistent with the creative divergence scenario, with incumbent knowledge investments helping them to learn from entrants, but these learning benefits being undermined as entrants move away from incumbents.The online appendices are available at https://doi.org/10.1287/orsc.2018.1264 .

The effects of alternative wage regimes in a monetary union: A multi-country agent based-stock flow consistent model

The Eurozone crisis has revitalized the debate between economists on the role played by wages in open economies. Salaries paid to workers are at the same time a fundamental source of aggregate demand and a determinant of firms’ international cost competitiveness. The paper investigates how alternative wage growth patterns impact on the economic dynamics of an artificial Monetary Union. For this sake, we perform several experiments employing the Agent Based-Stock Flow Consistent (AB-SFC) Multi-Country model first presented in Caiani et al. (2018a).Results show that a change in the wage growth pattern impacts in non-trivial ways on the demand and supply sides of the economies, giving rise to Keynesian and Schumpeterian effects. When occurring in a single country, wage expansions lead to a transitory deterioration of the country current account and to a slow-down of the economy in the short-run. However, on a longer time-span, higher wages tend to improve firms’ innovative performance by strengthening the process of Schumpeterian competition, providing long-run benefits in terms of higher labor productivity which allow the economy to recover. Conversely, a coordinated expansion of wages in all countries, which leaves their relative competitive position unaffected, tends to benefit real GDP, labor productivity growth, and countries’ public finance, while not affecting unemployment and countries’ external balance. A specular dynamics characterizes the experiments investigating the effects of wage moderation.Extensive sensitivity experiments show that these results are robust to different dimensions of the Monetary Union and that the efficacy of coordinated wage expansionary strategies is enhanced when consumers give more importance to price differentials in their consumption allocation decisions.

Неошумпетерианское тестирование факторов «созидательной» конкуренции: выводы для России

The article is devoted to the study of the current position of the schumpeterian competition. Interpreting schumpeterian competition as a struggle of entrepreneurial ideas, the author shows how the results of checking and developing Schumpeter’s ideas in contemporary neoSchumpeterian literature. Focusing on the conditions that determine the innovative nature of competition, the author outlines the main features of the Russian economy, which prevent its transition to an innovative competition.

Partial adjustment toward target R&D intensity

Existing research assumes that once firms have determined their target R&D intensity, they can adjust instantaneously and fully to their target R&D intensity, regardless of their past R&D intensity. In this study, we draw on the partial adjustment framework to examine the dynamics of firms' adjustment toward their target R&D intensity. We find that firms usually do not adjust instantaneously or fully to their target R&D intensity; they typically close half of the gap between their past and target R&D intensity in a year. Furthermore, we find that the speed of adjustment varies widely across firms. Firms with more cash flows, less debt, and more new equity financing have higher speed of adjustment. We draw implications for the dynamics of R&D investments and Schumpeterian competition.

Schumpeterian creative class competition, innovation policy, and regional economic growth

We focus on a region that is creative in the sense of Richard Florida. The creative class is broadly composed of existing and candidate entrepreneurs. The general question we analyze concerns the effects of Schumpeterian competition between existing and candidate entrepreneurs on economic growth and innovation policy in this region. We perform four specific tasks. First, when the flow rate of innovation function for the existing entrepreneurs is strictly concave, we delineate the circumstances in which competition between existing and candidate entrepreneurs leads to a unique balanced growth path (BGP) equilibrium. Second, we examine whether it is possible for the BGP equilibrium to involve different levels of R&D expenditures by the existing entrepreneurs. Third, we show how the BGP equilibrium is altered when the flow rate of innovation function for the existing entrepreneurs is constant. Finally, we study the impact that taxes and subsidies on R&D by existing and candidate entrepreneurs have on R&D expenditures and regional economic growth.

Creative Class Competition and Innovation in the Absence of patent Protection

Recently, Batabyal and Yoo (2018) have analyzed Schumpeterian competition in a region that is creative a la Richard Florida and where the creative class is made up of existing and candidate entrepreneurs. These researchers assume that an existing entrepreneur has a fully enforced patent on the inputs or machines that he has produced. We dispense with this assumption and study a scenario in which there is no patent protection for the representative existing entrepreneur (REE). This REE can undertake two possible types of innovation at the same cost. The first (second) type of innovation is general (specific) and hence can (cannot) be copied by the so called candidate entrepreneurs. In this setting, we perform two tasks. First, we show that although the REE will never undertake the general innovation, he may undertake the specific innovation. Second, we point out that even though the general innovation is not undertaken, the value to the creative region from the general innovation exceeds that from the specific innovation.

Innovation Dynamics and Industry Structure Under Different Technological Spaces

The paper presents an Agent-Based theoretical model to analyze the reciprocal influence between industry structure and industry innovation patterns. This topic was originally investigated through the famous models of Schumpeterian Competition developed by Nelson and Winter (1977; 1982; 1984). However, these models did not provide any insight about the direction of firms’ innovative activity, and lacked an explicit structure governing firms interactions and the shape of externalities. On the contrary, the empirical Evolutionary literature has suggested that these aspects, and the features of the technological system characterizing a specific industry, are relevant in shaping sectoral patterns of innovation and the industry evolution process. Our model addresses this issue by taking explicitly into account different characterizations of the ‘technological space’ within the industry, each one being represented as a directed network where each node constitutes a batch of technological skills to be learned by firms. The model shows that firms’ ability to imitate competitors generates spillover effects whose dimension depends on the topological structure of the industry technological space. In turn, these spillovers exert a significant impact on the process of Schumpeterian Competition, thus affecting industry performance and industry structure.