By: Nicolas Petit (Pro Market)
In antitrust policy circles, Joseph Schumpeter’s “creative destruction” theory is often mentioned but seldom listened to. The Schumpeterian neglect is understandable, but unfortunate. [Understandable, because the historical record of the economy involves mostly incremental/imitative entrants rather than the radical breakthroughs associated with creative destruction (Teece, 2018).]
My recent book Big Tech and the Digital Economy: The Moligopoly Scenario sheds light on how Schumpeter’s insights give us a useful model of “indirect entry” that fits the tendencies of competition in digital industries. Schumpeter considered that the main source of economic competition is wrought by product differentiation, complements, or new combinations, not by imitation, replication, and substitution of existing products. He colorfully stressed that this is as powerful “as bombardment is in forcing a door” (Teece, 2020).
The issue matters because the theory of government regulation of industry operates on a different assumption. The main source of competition that keeps markets free and competitive comes from entry of substitute products. And a suspicion of anticompetitive conduct by incumbents or of structural market failure arises when direct entry is not observed. The recent US antitrust charges against Google bring a good example. The engine of the case against Google brought by the Department of Justice is that by purpose or effect, Google’s payments to Apple and other original equipment manufacturers (OEMs) for pre-installation restricted the entry of rival search engines like DuckDuckGo.
But when the Schumpeterian model of “indirect entry” is added to standard assumptions and suspicions, a refined policy emerges. The prescription is neither less nor more Government intervention, but a different one. To see this, let us consider first models of indirect entry (1) and why they suit digital industries (2), explore high-level implications for policymaking (3), and discuss concrete illustrations by looking at two ongoing cases against big tech firms (4)….
Featured News
BHP Unveils £31bn Mining Megamerger Proposal with Anglo American
Apr 25, 2024 by
nhoch@pymnts.com
ByteDance Prefers Shutdown Over Sale of TikTok Amid US Ban Threats
Apr 25, 2024 by
CPI
FCC Votes to Restore Net Neutrality Rules
Apr 25, 2024 by
nhoch@pymnts.com
Apple Rejects Spotify’s Updated App Over In-App Pricing Disclosure
Apr 25, 2024 by
CPI
FCC Set to Reinstate Net Neutrality Rules Today
Apr 25, 2024 by
CPI
Antitrust Mix by CPI
Antitrust Chronicle® – Economics of Criminal Antitrust
Apr 19, 2024 by
CPI
Navigating Economic Expert Work in Criminal Antitrust Litigation
Apr 19, 2024 by
CPI
The Increased Importance of Economics in Cartel Cases
Apr 19, 2024 by
CPI
A Law and Economics Analysis of the Antitrust Treatment of Physician Collective Price Agreements
Apr 19, 2024 by
CPI
Information Exchange In Criminal Antitrust Cases: How Economic Testimony Can Tip The Scales
Apr 19, 2024 by
CPI