Barriers to Creative Destruction: Large Firms and Non-Productive Strategies

Abstract

This chapter reviews recent empirical evidence on large firms’ use of non-productive strategies that hinder creative destruction and reallocation. The focus is on three types of non-productive strategies: political connections, non-productive patenting, and anti-competitive acquisitions. The studies analyzing granular micro data sets from different contexts show that as firms gain market share, they tend to rely more on non-productive strategies to hold their dominant market positions while curtailing their use of productive, innovation-based growth strategies. Theoretical channels, aggregate implications, and some potential for policy are discussed.

Keywords: creative destruction, growth, innovation, non-productive strategies, political connection, patents, acquisitions

JEL Classification: 03, 04, E00