Innovating Big Tech Firms and Competition Policy: Favoring Dynamic Over Static Competition

31 Pages Posted: 12 Mar 2021 Last revised: 22 Sep 2021

See all articles by Nicolas Petit

Nicolas Petit

European University Institute - Department of Law (LAW)

David Teece

Institute for Business Innovation

Date Written: July 20, 2021

Abstract

This paper gives a fresh account of competition in the digital economy. Economic analysis in the field of industrial organization remains largely focused on a sophisticated version of the Schumpeter-Arrow debate, which is unresolved and largely irrelevant. We posit the need to look at competition anew. Static models of monopoly firms and markets in equilibrium are often used to characterize Big Tech firms’ size and scope. We suggest that this characterization is inappropriate because the growth and diversification of many digital firms lead to a situation of broad-spectrum competition that cuts across markets. Current market positions do not reflect monopoly power but are vulnerable to the competitive pressure of disequilibrating forces arising from the use of data-driven operating models, astute resource orchestration, and the exercise of dynamic capabilities. A few strategic errors by management in handling internal transitions and/or external challenges and big tech firms could be competitively impaired. The implications of a more dynamic understanding of the competition process in the digital economy are explored. We consider how big data and entrepreneurial management impacts firm performance. We also explore the nature of different types of rents (Schumpeterian, Ricardian, and monopoly rents) and suggest a modified long-term consumer welfare standard for competition policy. We formulate preliminary tests and predictors to assess dynamic competition. Our perspective advances a policy stance that favors innovation.

Keywords: Dynamic Competition, Capabilities, Innovation, Big Tech, Digital Economy, Data

JEL Classification: K20, K21, L40, L41, L50, O34

Suggested Citation

Petit, Nicolas and Teece, David J., Innovating Big Tech Firms and Competition Policy: Favoring Dynamic Over Static Competition (July 20, 2021). TPRC49: The 49th Research Conference on Communication, Information and Internet Policy, Available at SSRN: https://ssrn.com/abstract=3229180 or http://dx.doi.org/10.2139/ssrn.3229180

Nicolas Petit

European University Institute - Department of Law (LAW) ( email )

Via Bolognese 156 (Villa Salviati)
50-139 Firenze
Italy

David J. Teece (Contact Author)

Institute for Business Innovation ( email )

F402 Haas School of Business, #1930
Berkeley, CA 94720-1930
United States
(510) 642-4041 (Phone)

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