Next-Generation Competition: New Concepts for Understanding How Innovation Shapes Competition and Policy in the Digital Economy
![handle is hein.journals/jecoplcy9 and id is 101 raw text is: NEXT-GENERATION COMPETITION: NEW CONCEPTS FOR
UNDERSTANDING How INNOVATION SHAPES COMPETITION AND
POLICY IN THE DIGITAL ECONOMY
David J. Teece'
INTRODUCTION
In advanced economies with good infrastructure, good public policies,
rule of law, and strong property rights, innovation is the primary driver of
economic growth. This means not only innovation in goods and services
but also innovation in the way that businesses operate, both individually
and in combination. Though often overlooked, organizational and mana-
gerial innovations are as important to economic growth as technological
innovation.
Technological innovation may have accelerated in recent decades and
is unquestionably shaping the competitive landscape. Moreover, with the
advent of the Internet, the impact of organizational innovation is more sa-
lient as new business models enhance performance and permit the viability
of new types of businesses.
One can better distill policy and management implications by observ-
ing the changes that are afoot. Perhaps unsurprisingly, our present under-
standing of these unfolding developments is rudimentary. Academics are
having only modest levels of success in comprehending, interpreting, and
informing the evolution of this new order while practitioners are dealing
with the new phenomena on a daily basis.
Businesses must react in real time to changes in technology, regula-
tion, and competition. The most alert and agile leadership teams are out in
front driving innovation and change. Business and legal scholars closely
follow evolving business practices and observe them first-hand. They must
evolve their frameworks to keep up with changes as best they can in order
to stay relevant. Many are endeavoring to do so.
Unfortunately, mainstream economists are slow in coming to under-
stand this new order. In the last half of the 20th century, the economics
profession collectively cloaked itself in the standards of good science.
Economists, unfortunately, seem to have interpreted good science as requir-
ing the use of the models and theories of neoclassical economics. These
models and theories, which often suppress institutional, managerial, and
* Director, Institute for Business Innovation, Haas School, UC Berkeley. Paper based on lun-
cheon address at The Digital Inventor: How Entrepreneurs Compete on Platforms, George Mason Uni-
versity, on February 24, 2012. 1 wish to thank Greg Linden for helpful comments and assistance.
2012]
97](ViewImageLocal?handle=hein.journals/jecoplcy9&div=9&collection=&method=preview&ext=.png&size=3)
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