Home | Databases | WorldLII | Search | Feedback Edited Legal Collections Data

Bresnahan, Timothy F. --- "Monopolization and the Fading Dominant Firm" [2010] ELECD 365; in Mateus, M. Abel; Moreira, Teresa (eds), "Competition Law and Economics" (Edward Elgar Publishing, 2010)

Book Title: Competition Law and Economics

Editor(s): Mateus, M. Abel; Moreira, Teresa

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848449992

Section: Chapter 17

Section Title: Monopolization and the Fading Dominant Firm

Author(s): Bresnahan, Timothy F.

Number of pages: 27

Extract:

17. Monopolization and the fading
dominant firm
Timothy F. Bresnahan1

1. INTRODUCTION

From time to time a dominant firm, however innovative or competitive it
may once have been, loses the capability advantages that brought it earlier
success. This does not necessarily mean that the dominant firm has lost
capabilities. If innovative outsiders' capabilities pass the dominant firm's,
that can remove its capability advantages. This can occur when the tech-
nological or market basis of the industry is changing, or when the specific
set of technologies, strategies, or business models chosen by the dominant
firm are beginning to be eclipsed by innovative ideas from outside. This
familiar industry situation is the fading dominant firm.2
Industries with a fading dominant firm need not be a problem for society
if creative destruction competition offers consumers a choice between the
old and the new. Consumers benefit from that increased choice. Further,
as Schumpeter (1942) pointed out, consumers benefit if either creative
destruction literally replaces the old with the new or if the mere threat of
creative destruction gives the existing dominant firm a powerful incen-
tive to catch up to entrants in productive or innovative capabilities. That
incentive to rebuild capability advantages within the dominant firm is a
consumer benefit of creative destruction competition. Unfettered creative
destruction competition is accordingly important to consumer welfare
gains and to economic growth.
Sometimes a fading dominant firm's strategy facing the threat of crea-
tive destruction competition will be to block the new competition. The


...