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Schumpeterian Incumbents and Industry Evolution

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Foundations of Economic Change

Part of the book series: Economic Complexity and Evolution ((ECAE))

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Abstract

This essay explores the role of established firms in the evolution of innovative industries. Both direct and indirect contributions are discussed. Besides innovation in their own industries, established firms are often among the pioneering entrants into related markets. They enable spin-off entrepreneurship and provide exit options for startups through acquisition. Furthermore, established firms help shape and directly support public research activities. The multiple roles of established firms, their interaction with new entrants in the innovation process, and the dynamics on industry evolution in an increasingly globalized world are not sufficiently well understood.

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Notes

  1. 1.

    There is an important difference between new firm formation and entry into new industries. New entrants into an industry are not necessarily newly established firms. A conceptual distinction is therefore made between de novo entrants, i.e., new ventures, and de alio entrants, i.e., firms that have already been active in other industries. Hybrid forms also exist (cf. Helfat and Lieberman 2002).

  2. 2.

    I am grateful to an anonymous reviewer for making this point.

  3. 3.

    There is little systematic research into whether new entrants, notably startups, are particularly prone to generate radical innovation (Cohen 2010).

  4. 4.

    A crucial assumption underlying the cost-spreading model is that there are no well-functioning markets for technology and firms engage in R&D activities for their own use (cf. Cohen 2010, for a discussion).

  5. 5.

    Other research has pointed out that U.S. tire producers eventually lost their dominance when they were challenged by the ascent of the radial tire in the 1970s (Sull 2001). It is noteworthy in this context that the radial tire was not introduced by innovative startups, but by established European producers (in particular, Michelin from France) diversifying into the U.S. market. A similar account can be given for the decline of the U.S. automobile industry after the entry of Japanese producers. Diversifying entry will be in the focus of the subsequent section.

  6. 6.

    Note also the similar origins of the conventional mobile phone that the iPhone successfully challenged. The mobile phone had first been commercialized in 1983/1984 by Motorola, then 55 years old, and Nokia, then 119 years old. Both firms were diversifiers with substantial experience in related markets.

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Authors and Affiliations

  1. Department of Economics and INCHER-Kassel, University of Kassel, Moenchebergstrasse 17, 34109, Kassel, Germany

    Guido Buenstorf

  2. Institute of Innovation and Entrepreneurship, University of Gothenburg, Göteborg, Sweden

    Guido Buenstorf

  3. Leibniz Institute of Economic Research (IWH), Halle, Germany

    Guido Buenstorf

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  1. Guido Buenstorf
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Correspondence to Guido Buenstorf .

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Editors and Affiliations

  1. University of Hohenheim, Stuttgart, Germany

    Andreas Pyka

  2. Department of Economics, Friedrich Schiller University Jena, Jena, Germany

    Uwe Cantner

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Buenstorf, G. (2017). Schumpeterian Incumbents and Industry Evolution. In: Pyka, A., Cantner, U. (eds) Foundations of Economic Change. Economic Complexity and Evolution. Springer, Cham. https://doi.org/10.1007/978-3-319-62009-1_13

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