Schumpeterian Trade-Off Essay Example Essay Example

Schumpeterian Trade-Off Essay Example Paper Schumpeterian Trade-Off Essay Introduction Antitrust laws or competition laws are a set of laws that are created to make monopolies or anti-competitive behavior illegal. This includes the interdiction of unfair business practices. Such laws are designed to protect business entities and consumers alike from individuals or organizations who seek nothing but to take advantage of unknowing defenseless individuals and would stop at virtually nothing to get what they want. Violators of the antitrust law come in many guises. They are mostly clever con artists disguised as business people who intend to defraud people of money.Joseph Schumpeter’s concept of competitionJoseph Schumpeter defined democracy as the instrument for â€Å"competition between leaders†. True enough, without democracy, industry players cannot freely put together new ideas that would affect change in the market and bring about healthy rivalry. As much as democracy is a privilege, there is a corresponding accountability. Business organizations are su bject to the business laws of the country where they operate in. As such, competition laws also vary from country to country. These laws are based upon economic principles that apply to and interconnect with the business laws. (Wikipedia, 2007)The Schumpeterian concept of competition is touted as the most conventional economic approach on the subject matter. Joseph Schumpeter characterizes competition as an operational procedure wherein organizations make their effort to subsist and/ or outlive each other, based on the principle that they carry on with their activities under the mandate of a collection of laws or rules that incessantly creates winners and losers (Araujo Jr., 1999).In this process, the main criteria that allows certain organizations to excel in their field and be at the forefront of the industry is the â€Å" introduction of informational asymmetries â€Å". Simply put, those who get ahead of the competition are those who are able to bring in changes to the industr y that affect the spending habits of the consumers. (Araujo Jr., 1999)According to Baumol (1990), three types of â€Å"entrepreneurial activities† that bring about â€Å"asymmetries† and may result in progress. These are technological innovation, rent seeking and organized crime. (Araujo Jr., 1999)Schumpeterian Competition policy and innovationIn their paper â€Å" Schumpeterian Competition and Antitrust policy in High-tech Markets â€Å", Michael Katz and Howard Shelanski claim that Schumpterian Competition contend that those who implement the antitrust laws will do better to uphold and support technological innovation by moderating their dependence on interim suggestions of product-market competition. (Katz Shelanski, 2006)Schumpeterian competition is based on the theory that when companies encounter competition, they strive to get more of the market share by offering higher quality products or offering more affordable prices than their competitors. This helps by making affordable, high quality products more available to consumers. Accordingly, antitrust or competition policy is intended as an avenue to support consumer welfare. (Katz Shelanski, 2006)The research and development efforts of rival companies bring about exciting, innovative and better products to the market and help trim down production costs . (Katz Shelanski, 2006)Competition policies protect against monopolies. Apart from this, competition encourages innovation. With competition, industry players are driven to make innovations in order to make their products and services more desirable, more marketable to the consumer. Competition among organizations may range from prices, product features to the quality of products and services.Competition versus innovationA certain extent of conflict involves the competition and innovation policies of economies. Joseph Schumpeter believes that competition would lead to stagnation and that monopoly should not be discounted altogether.In a study presented at the Conference on Competition and Industrial Dynamics, Danish Research Unit for Industrial Dynamics, held in Skagen, Esben Sloth Andersen pointed out that according to Schumpeterian Competition there should be less emphasis on invariable or stagnant efficiency related to perfect competition. (Andersen, June 1997)Doing so would eradicate self-generating technological change. A better alternative would be to acknowledge that a certain degree of monopoly is essential to sustain the process of endogenous growth and development. (Andersen, June 1997)Initial antitrust cases indirectly mentioned the significance of innovation not accompanied by explanations as to how innovation would relate to competition. There was a gradual progression with regards to the role of competition in relation to innovation. Andersen cited that as early as 1916 Judge Learned Hand wrote â€Å"the consumer’s interest in the long run is quite different from an immediate fall in pricesâ €  and spoke of competition as a â€Å"proper stimulus to the maintenance of industrial advance.† Later in the 60s, courts would specifically articulate the need to consider that antitrust laws are intended to â€Å"protect and encourage progressiveness and innovation â€Å". By the 90s, innovation became an essential factor in evaluating mergers, to the point where an antitrust enforcement official claimed that, although price competition is a very important dynamic, maintaining competition for innovation is of almost equal footing. (Andersen, June 1997)Innovation in relation to CompetitionCompetition, for the most part takes place in the course of series of innovations. It does not happen by setting static prices or by output competition. Proponents of Schumpeterian Competition maintain that competition based on innovation sets the scene for a careful withdrawal from antitrust implementation.Organizations in innovation driven markets compete for transitory market supre macy by introducing new, significant advances in technology. Companies compete not for a market share concurrently but for the whole market. The crucial inference of the progressive competition for antitrust is that the most important factor that drives and translates into market performance is innovation and not sales and price margins. (Katz Shelanski, 2006)Joseph Schumpeter claims that incessant research and development endeavors lead to recurring trends of new technology. This usually leads to comprehensive modifications in product and market positions of suppliers. This is where Schumpeter came up with the concept of â€Å"creative destruction. According Schumpeter, the process of creative destruction, â€Å"strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.† The entrepreneurial quest to increase profits is the ingenious and vibrant force that transforms the structure of an organization from wi thin. The old system is made obsolete, and the new system is implemented. Under this principle, organizations belonging to such markets understand that they have to offer better products and services at more attractive terms in order to ensnare the market (Katz Shelanski, 2006)Integrating innovation into antitrust analysisShifting an organization’s focus from product markets towards considering investments in research and development are among the approaches that can be employed in integrating innovation into antitrust analysis. Richard Gilbert and Steven Sunshine came up with the concept of innovation markets to serve as a guideline to verify whether a merger is expected to lessen innovation. Innovation markets are guidelines that would check for overlapping research and development functions, consider alternative sources, assess whether the stepping up research and development efforts and spending the necessary resources towards such activities would affect R D after the merger. (Andersen, June 1997)Joseph Schumpeter cautions against examining the market in static terms. Schumpeter warned against the focus on static price and output competition, for fear that emphasis on the two factors distract from the more important which is innovation.(Katz Shelanski, 2006)Schumpeter maintains that other market factors such as sales and output may catapult a company way ahead of its rivals but this will not stay true in the long term if not carefully safeguarded. The means to safeguard this position of power is to continue innovation efforts. A company must not only compete with rivals in the industry but it should also try to outdo previous efforts everytime.Supporters of Schumpeterian competition contend that markets driven by innovation should have antitrust analysis concentrated on how processes such as mergers will affect an organization’s capacity to continue innovation efforts. Less time should be spent on market power, pricing and output generati on decisions. This is where conflicts arise. A merger between two companies may increase market prices at the onset but the consolidation of resources might increase the company’s capacity to bring about new product innovations. What may be seen as a negative incident at the start may lead to continuous success in the long run.Companies that intend to stay afloat for the long haul need to focus on efforts that will ensure long-term market dominance. Innovation is the key to long term success. This often comes with a hefty price. As such, decision makers should carefully weigh the factors that would affect their decisions. Some risks are worth taking. Efforts that are geared towards innovation may seem costly at first but will pay off in the long term. Apart from considering costs and market position, the capacity for innovation should be a major component in antitrust analysis. (Katz Shelanski, 2006)As the trend in the business world is gearing towards the rise of more innov ation-driven companies in the future, the connection between innovation and antitrust will continue to be significant in studies and discussions with regards to competition policy. Proponents of antitrust enforcement must face the challenge of enhancing their tools and procedures that would encourage technological innovation and advancement efforts. (Katz Shelanski, 2006) Schumpeterian Trade-Off Essay Thank you for reading this Sample!