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Schumpeterian Competition and Antitrust

 |  October 30, 2008

Herbert Hovenkamp, Nov 01, 2008

Joseph Schumpeter´s vision of competition saw it as a destructive process in which effort, assets, and fortunes were continuously destroyed by innovation. This endless process displaced older technologies in order to make way for new ones, but led to economic growth far greater than more stable, conservative alternatives. Schumpeter´s vision was striking in sharp contrast with the conventional neoclassical model of competitive markets, where the focus was on changes in output and price, relatively leisurely shifts in consumer tastes, and exceptional strategic behavior that occasionally dislodged one technology and displaced it by another. Neoclassical competition is a little like watching the ocean when it is calm, while Schumpeterian competition is like watching a raging storm or perhaps even a tidal wave. As Evans and Hylton so powerfully observe, neoclassical economics is much more comfortable modeling the relatively stable situation than the Schumpeterian one. Economists since Alfred Marshall have observed that the static, partial equilibrium analysis that dominates industrial economics is readily susceptible to mathematics, and many of its rather specific propositions are testable. The Schumpeter model may be testable at a very general level, but probably not in any sense that antitrust policy finds useful. Schumpeter´s analysis is much too concerned with the mostly unmanageable realities of the economy as a whole and with largely unanticipated developments that cannot readily be modeled within the equilibrium-searching forces of neoclassical economics.

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