Puncturing Equilibrium: Radical Innovation as New Market Emergence
Thomas E. Vass
The Private Capital Market
October 30, 2008
Our interest in writing this article is to create a bridge between the scholarly and academic research on technological innovation and a private sector, for-profit business model that implements the ideas on innovation and entrepreneurship, primarily in metro regional economies.
Radical innovation is less likely to be commercialized than sustaining innovation because consumers do not know how it will fit in their consumer welfare function when they first see it. But, radical innovation leads potentially to a macro economic bifurcation, which means that an entirely new market emerges. New market emergence in the future time period means that the economy can never return to a prior point of equilibrium in the old market.
Sustaining innovation is more likely to be accepted by consumers than radical innovation, but sustaining innovation does not lead to new market emergence. Generally, sustaining innovation leads to a Nash equilibrium. The Nash equilibrium conditions are reached over a long period of time based upon allegiance to the status quo, and the rate of capital investment in prior periods of time. As economic growth slows, income competition becomes more intense, with the more powerful agents able to extract greater income from less powerful agents, as a result of political manipulation of the rules of reward.
Government control over the innovation process leads to allegiance of status quo markets and status quo distribution of political power. Too much government leads to a type of biological outcome called Mueller's Ratchet. Government control over innovation kills technological diversity, and does nothing to promote the gales of creative destruction associated with radical innovation.
Number of Pages in PDF File: 9
Keywords: radical innovation, sustaining innovation, new market emergence, Nash equilibrium, Mueller's Ratchet
JEL Classification: L16, M13, O16, O31, O32, O33, O34, O38, R58working papers series
Date posted: October 31, 2008
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