1985/02/01 by Jennifer F. Reinganum · 315 citations
Decision Sciences · Economics, Econometrics and Finance · #Business #Capitalism #Computer science #Creative destruction #Economic system #Economic theories and models #Economics #Firm Innovation and Growth #GRASP #Industrial organization #Innovation Diffusion and Forecasting #Market economy #Microeconomics #Monopoly #Neoclassical economics #Political science #Power (physics) #Process (computing) #Production (economics)
paper · doi:10.2307/1885736
published in The Quarterly Journal of Economics 100(1), 81 (Oxford University Press)
openalex publication_date 1985/02/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/30
The theoretical literature on innovation has been concerned with a single innovation produced by a number of identical agents. By contrast, we consider a market in which one firm is the current incumbent, while the remaining firms are challengers. Moreover, we consider a sequence of innovations, so that success does not imply that the successful firm reaps monopoly profits forever after, but only until the next, better innovation is developed. We begin with a fully optimizing behavioral model and derive the equivalent of the Schumpeterian “process of creative destruction.” That is, a firm enjoys temporary monopoly power but is soon overthrown by a more inventive challenger. The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process…The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers' goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates [Schumpeter, 1942, pp. 82–83].