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Tuesday, June 29, 2004

Technology and Competition

There are Marxian arguments linking technological innovation with a falling rate of profit.

In many situations, innovation yields at best a short-term competitive advantage to the innovators, since rival firms are apparently "forced" to copy the innovation to remain competitive. Banks and ATMs are commonly cited as an example of this, although I have not examined the data.

This would suggest that technology "diffusion" is influenced by the competitive environment. It is "rational" for a monopoly to resist technical innovation, since innovation is likely to erode profit. We should therefore expect greater resistance from monopolies (and perhaps oligopolies), and lower resistance in markets where competition is keener.

This suggestion may only apply to some types of innovation. If so, it would be useful to know which types.

I am interested to know of any relevant studies on the relationship between technology change and profitability, possibly (but not necessarily) from a Marxian or neoMarxian perspective.

Further Notes ...

Update November 2004

I have found some relevant commentary on the Microsoft antitrust trial from two years ago. This includes an article from the Economist, quoted and extended in several blogs.

"What is striking is how little innovation there has been in the bits of the market that Microsoft dominates, and how much where it has little influence. Operating systems, web browsers and word-processing software all look much as they did five years ago. But not many people are using five-year-old mobile phones, handheld computers or music-sharing software. Opponents of the case always argued that there was no evidence that Microsoft's monopoly was doing any harm. But the harm lay in the (necessarily invisible) innovation that did not occur. Conversely, much of the innovation going on in other parts of the technology industry owes a lot to Microsoft's absence. And that absence can be attributed, at least in part, to the trial, which lifted the lid on Microsoft's behaviour."

There is a lively discussion following Brad's blog entry, which shows that the evidence can be interpreted in different ways. That was the point of my original blog posting. It is not hard to find anecdote and advice about innovation - just look in any airport bookstall. But what passes for serious research is often little more than rehash of received opinion .

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