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Schumpeter's View of Competition

Good Essays
Creative Destruction

The article titled “Schumpeterian competition and diseconomy of scope; illustrations from histories of Microsoft and IBM” by the authors Bresnahan, Greenstein and Henderson is a great attempt to address the creative destruction problem that face organizations mostly in the technology-led and innovation-based industries. In that respect, this paper is a reaction to the authors’ arguments with a view on their focus on diseconomy of scope in addressing the possible cause of the creative destruction problem. To achieve that objective, the argument begins by reviewing the author’s argument and introducing a counter argument that is then supported by a further review of their argument’s validity as well as the strength of the counterargument. (Bresnahan, Greenstein & Henderson, 2011)

Authors’ view

Schumpeter’s view of competition is that companies’ innovation is continuously destructive to processes and assets. In that respect, new technologies displace the older ones making way for greater growth than in the conservative and stable markets. The authors’ review of the failure by IBM and Microsoft provides a good description of that Schumpeterian competition and diseconomy of scope. In that analysis, the author’s address the question on the causes of creative destruction through which they challenge the view that failure in new technological areas by companies that have been successful in theindustry is explained by two scenarios. One being that the companies fear the cannibalization hence ends up under-investing in the new market. The other explanation challenged is that the companies tend to develop cognitive frameworks and organizational capabilities that slow their identification and response to new opportunit...

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...077, (2011): 1-69.

Marsili, O. The Anatomy and Evolution of Industries. Cheltenham: Edward Elgar, 2001.

Nerkar, A. Paruchuri, S. “Evolution of R&D capabilities: role of knowledge networks

within a firm”. Management Science, 51.5, (2005): 771-785.

Works Cited

Breschi, S., Malerba, F. & Orsenigo, L. “Technological regimes and

Schumpeterian patterns of innovation”. The Economic Journal, 110, (2000): 388-410.

Bresnahan, T. Greenstein, S. & Henderson, R. “Schumpeterian competition and diseconomies of scope; illustrations from the histories of Microsoft and IBM.” Harvard Business School, Working Paper 11-077, (2011): 1-69.

Marsili, O. The Anatomy and Evolution of Industries. Cheltenham: Edward Elgar, 2001.

Nerkar, A. Paruchuri, S. “Evolution of R&D capabilities: role of knowledge networks

within a firm”. Management Science, 51.5, (2005): 771-785.
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