Consumers and enterprises as actors on the market

Keywords: Market, differentiation, commoditization, innovation, creative destruction, monopoly rent, organic composition of capital, volatility, concentration of capital

Abstract

This conceptual paper discusses the phenomenon of differentiation made possible through branding or innovation or a combination of the two. Differentiation is eventually the driving force for the development of its own negation, commoditization. When customers have endured a commoditized market long enough the opportunities open up for creative destruction, this concept of Schumpeter (1942), means that an entrepreneur invents a completely new way of satisfying the customers’ unsatisfied needs, making the industry that no longer bothered about their customers. Many researchers have tried to re/brand destructive innovation as their own, with concepts, such as of ”transilience”, and “blue ocean strategy’, as opposed to ‘red ocean strategy’.

The paper focuses on innovation as a differentiation strategy and on temporary monopoly rent as a driver of innovation. Increased competition and shortening and life cycles makes capitalism more volatile and the strategies to reduce the risks involved are discussed. These strategies lead to the real-world implementation of the concentration of capital forecasted by Marx and feared by Schumpeter.

The paper identifies the need to continuously monitor the concentration of capital and to understand individual markets by studying the firm’s profit.

Downloads

Download data is not yet available.

Author Biography

Sarah Philipson , University of Gävle, Sweden. Linnaeus University, Sweden

Associate Professor Emerita. University of Gävle. Sweden.
Affiliated with Linnaeus University. Sweden.

References

Abernathy, W. J., & Clark, K. B. (1985). Innovation: Mapping the winds of creative destruction. Research Policy, 14(1), 3-22.

AbuGhazaleh, N. M., Al-Hares, O. M., & Haddad, A. E. (2012). The Value Relevance of goodwill impairments: UK Evidence. International Journal of Economics and Finance, 4(4), 206-216.

Asymco (2013). Apple captured two thirds of available mobile phone profits in Q2. 28 June. Retrieved from: http://www.asymco.com/2011/07/29/apple-captured-two-thirds-of-available-mobile-phone-profits-in-q2/

Baumol, W. J. (1996). Entrepreneurship: Productive, unproductive, and destructive. Journal of business venturing, 11(1), 3-22.

Bernard, V. L. (1995). The Feltham-Ohlson framework: Implications for empiricists. Contemporary Accounting Research, 11(2), 733-747.

Carlin, W., Haskel, J. & Seabright, P. (2001). Understanding ‘the essential fact about capitalism’: Markets, competition and creative destruction. National Institute Economic Review, 175(1), 67-84.

Chan, K. W., & Mauborgne, R. (2004) Blue Ocean Strategy. Harvard Business Review, 82(10), 76-84.

Chan, K. W., & Mauborgne, R. (2005a). Value innovation: a leap into the blue ocean. Journal of Business Strategy, 26(4), 22-28.

Chan, K. W., & Mauborgne, R. (2005b). Blue ocean strategy: from theory to practice. California Management Review, 47(3), 105-121.

Chayanov, A. C. (1925/1966) The Theory of Peasant Economy, Thorner, D., Kerblay, B. & Smith, R.E.F. (editors), Madison, WI: The University of Wisconsin Press.

De Figueiredo, J. M., & Kyle, M. K. (2006). Surviving the gales of creative destruction: The determinants of product turnover. Strategic Management Journal, 27(3), 241-264.

Elliott, J. E. (1980). Marx and Schumpeter on capitalism's creative destruction: A comparative restatement. The Quarterly Journal of Economics, 95(1), 45-68.

Feltham G. A. & Ohlson J. A. (1995). Valuation and clean surplus accounting for operating and financial activities. Contemporary Accounting Research, 11(2), 689-731.

Fichtner, J., Heemskerk, E. M., & Garcia-Bernardo, J. (2017) Hidden power of the Big Three? Passive index funds, re-concentration of corporate ownership, and new financial risk, Business and Politics,19(2), 298-326.

Glattfelder, J. B. (2010) Ownership Networks and Corporate Control: Mapping Economic Power in a Globalized World. Doctoral dissertation, Zührich: Eth Zurich.

Gordon, M. J., & Shapiro, E. (1956). Capital equipment analysis: The required rate of profit. Management Science, 3(1), 102-110.

Gupta, A. (2013). Environment & PEST analysis: an approach to the external business environment. International Journal of Modern Social Sciences, 2(1), 34-43.

Hilferding, R. (1919/2007) Finance Capital: A study in the latest phase of capitalist development. London: Routledge.

Kaplan, R. S., & Norton, D. P. (2008). Mastering the management system. Harvard Business Review, 86(1), 62-78.

Kim, W. C., & Mauborgne, R. (2005a). Blue ocean strategy: from theory to practice. California Management Review, 47(3), 105-121.

Kim, W. C., & Mauborgne, R. (2005b). How to create uncontested market space and make the competition irrelevant. Harvard Business Review, 4(13), 1-2.

Kim, W.C., & Mauborgne, R. (2005c). Value innovation: a leap into the blue ocean. Journal of Business Strategy, 26(4), 22-28.

Kjellström, E. (2019). Outsourcing of Organizational Routines. Knowledge, control, and learning aspects. Lund Studies in Economics and Management, Lund: Lund University.

Lo, K., & Lys, T. (2000). The Ohlson Model: Contribution to valuation theory, limitations, and empirical applications. Journal of Accounting, Auditing & Finance, 15(3), 337-367.

Lundholm, R. J. (2014). A tutorial on the Ohlson and Feltham/Ohlsonmodels: Answers to some frequently asked questions. Contemporary Accounting Research, 11(2), 749-761.

Malthus, T. R. (1798/1970). An Essay on the Principle of Population. Harmondsworth: Penguin Books.

Marx, K. (1857/1973). Grundrisse: Foundations of the Critique of Political Economy: rough draft. London: Pelican Books.

Marx, K. (1867/1970). Capital, Volume I, New York: International Publisher.

Marx, K. (1894/1970). Capital, Volume III, New York: International Publisher.

Miller, M. H., & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares, The Journal of Business, 34(4), 411-433.

Nicholas, T. (2003). Why Schumpeter was right: innovation, market power, and creative destruction in 1920s America. The Journal of Economic History, 63(4), 1023-1058.

Ohlson, J. A. (1995). Earnings, book values, and dividends in equity valuation. Contemporary Accounting Research, 11(2), 661-687.

Penrose, E. (1959/2009). Theory of the growth of the firm. Oxford: Oxford University Press.

Philipson, S. (1980). Kapitalfunktioner och arbetarnas ställning: marxistisk analys av företag utifrån arbetarkollektivets intressen. Doctoral Dissertation, Linköping University, Linköping. LIBRIS-ID: 7638092. http://libris.kb.se/bib/7638092?vw=full

Philipson, S. (2019) Cost-structure and the volatility of capitalism. In D. Vrontis, Y. Weber & E. Tsoukatos (Eds.), Proceedings from the 12th Annual Conference of the EuroMed Academy of Business, Business Management Theories and Practices in a Dynamic Competitive Environment (pp. 988-995), Thessaloniki: Euromed Press.

Philipson, S., Johansson, J., & Schley, D. (2016). Global Corporate Governance: The Maelstrom of Increased Complexity – Is It Possible to Learn to Ride the Dragon? Journal of Business and Economics, 7(3), 425-437. http://doi.org/10.15341/jbe(2155-7950)/03.07.2016/007.

Philipson, S. & Oghazi, P. (2013). Quantum leaps – the Resource Based View (RBV) and the School of Industrial Organization (IO) Revisited. Advances in Management, 6(4), 25-36.

Prahalad, C. K. (2011). Bottom of the Pyramid as a Source of Breakthrough Innovations. Journal of Product Innovation Management, 29(1), 6-12.

Ricardo, D. (1817/1971). On the Principles of Political Economy and Taxation. Harmondsworth: Penguin Books.

Schumpeter, J. A. (1942). Socialism, Capitalism and Democracy. New York: Harper and Brothers.

Schumpeter, J. A. (1947). The Creative Response in Economic History. The Journal of Economic History, 7(2), 149-159.

Smith, A. (1776/982). The Wealth of Nations. London: Penguin.

Spencer, A. S., & Kirchhoff, B. A. (2006). Schumpeter and new technology based firms: Towards a framework for how NTBFs cause creative destruction. International Entrepreneurship and Management Journal, 2(2), 145-156.

Spencer, A. S., Kirchhoff, B. A., & White, C. (2008). Entrepreneurship, innovation, and wealth distribution: The essence of creative destruction. International Small Business Journal, 26(1), 9-26.

Von Hippel, E. (1988). The Sources of Innovation. New York: Oxford University Press.

Zeschky, M., Widenmayer, B., & Gassmann, O. (2011). Frugal innovation in emerging markets. Research-Technology Management, 54(4), 38-45.

Published
2020-12-01
How to Cite
Philipson , S. (2020). Consumers and enterprises as actors on the market. Harvard Deusto Business Research, 9(2), 168-180. https://doi.org/10.48132/hdbr.302
Section
Articles