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Innovating big tech firms and competition policy: favoring dynamic over static competition

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Petit, Nicolas, Teece, David J·2021·Industrial and Corporate Change
DOI 10.1093/icc/dtab049
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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 entrenched monopoly power but are vulnerable to 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 the handling of internal transitions and/or external challenges and they could be competitively impaired. The implications of a more dynamic understanding of the competition process in the tech sector 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.

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  • Financial reporting frameworks assume a world of consumers purchasing physical commodities in more or less competitive markets, rather than a world where rentier profits are generated from the monetisation of freely provided data from users accessing free online services.

    “financial reporting frameworks assume a world of consumers purchasing physical commodities in more or less competitive markets, rather than a world where (rentier-) profits are generated from the monetisation of freely provided data from users accessing free online services (Petit and Teece, 2021;Mazzucato et al., 2023).”

    From Mapping modern economic rents: the good, the bad, and the grey areas (2023) · cites this paper as Petit and Teece, 2021

    Section 3.3.1 describes Google collecting data from users’ searches, linking it to advertising, and developing a profitable business model. But the paper does not say that financial reporting frameworks assume purchases of physical commodities, and Section 4.1 cautions that high profits need not be monopoly rents; it does not establish that the profits described here are rentier profits. Page numbers were not provided in our copy. (LLM, conf=0.85)

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Authors
Petit, N., & Teece, D. J.
Affiliations
  • European University Institute (IT)
  • University of California, Berkeley (US)
Corresponding author
Petit, Nicolas
ORCID
Venue
Industrial and Corporate Change
Publisher
Oxford University Press (OUP)
Published
2021-09-03
Volume
30
Issue
5
Pages
1168-1198
ISSN
  • 0960-6491 (ISSN-L)
  • 1464-3650
DOI
10.1093/icc/dtab049
OpenAlex
W3196498126
Cited by
109
References
4
Citations by year
2026: 13 · 2025: 29 · 2024: 20 · 2023: 22 · 2022: 14 · 2021: 10 · 2018: 1
FWCI
14.72
Type
journal article
Language
en
Open access
Licence
Locations
  • Industrial and Corporate Change (publishedVersion, cc-by)
  • SSRN Electronic Journal (acceptedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
  • Cadmus - EUI Research Repository (European University Institute) (submittedVersion, cc-by)
Topics
  • Social Sciences › Business, Management and Accounting › Strategy and Management › Diverse Legal and Medical Studies
  • Social Sciences › Business, Management and Accounting › Strategy and Management › Digital Platforms and Economics
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Merger and Competition Analysis
Keywords
competition policy, dynamic competition, monopoly rents, Ricardian rent, data-driven business models, dynamic capabilities, business diversification, consumer welfare, innovation, digital economy

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