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Austrian and Schumpeterian Views toCompetitive Analysis
There are a number of alternative approaches to competitive analysis. The main ones are the Austrian, Schumpeterian and Chicago schools of thought. The Austrian and Schumpeterianapproaches view competition as a dynamic process. They believe that competition could not beanalyzed using the static approaches. Their concern is with the roles of the entrepreneur andknowledge in a dynamic system.Schumpeter (1950) saw the competitive process as being driven by non-price competition (i.e.innovation) and strategic decisions emanating from entrepreneurs. This innovative activity leads toa revolution in existing economic conditions by destroying old production techniques and creatingnew ones. Entrepreneurs introducing new innovations, which create monopoly profits, drive this
process of ‘creative destruction’. These monopoly profits encourage entrepreneurs in other related
industries to innovate as well.Recent examples of such a competitive process can be found in the computing industry withdevelopments in operating systems and communications with the advent of mobile telephones anddigital television. The clusters of innovations have the effect of propelling the economy toward a
higher state. However, following a brief ‘catching up’ period, imitators
start to flood the market with similar innovations. This has the effect of undermining any monopoly profits, eventually bringing the economy to a new period of relative tranquility. Abnormal profits are both the reward for past innovation and the incentive for future innovativeactivity. The source of any monopoly profits is the superior productivity achieved by theentrepreneurial innovation. These profits do not persist due to imitation, but eventually dissipate before a new cluster of innovations appears and the process begins again. Therefore, there is norole for government intervention to ensure a competitive (outcome) environment.