Based on the Timothy Bresnahan, Shane Greenstein, and Rebecca Henderson’s article Schumpeterian Competition and Diseconomies of Scope, the authors suggest that in the past, the incumbent and successful firms fail in new markets due to the strategies they use in these markets. Other suggestions in this article include the fact that the organization frames of these big firms have been unable to flex appropriately for the new era in technology due to their fixed nature. Additionally, it is suggested that, the fear of cannibalization coupled with the underinvestment could also be a source of failure in these incumbent firms. However, the waves of innovative technology and activity threaten the best of firms notwithstanding their size and market control. This article refers to these bursts as the Schumpeterian bursts.
The entry of new firms into an industry or the introduction of a new technology prompts several choices, which the firms are forced to deal with them. These changes include merging with each other and gaining the control rights of the market. Despite the fact that these choices and activities in the business environment do not warrant either success or failure in the market, they are still cruel in the decision making in the market. The authors in Schumpeterian Competition and Diseconomies of Scope argue that such choices are responsible for the drastic management changes, and consequently the firms’ behavior. I believe that this kind of diseconomy is partly responsible for the failure in new markets and new technological era. Nevertheless, this assumption ignores the argument that management of new entrants is not the sole reason behind their success in the new markets and technological era; there are other factors that are interplaying in the market, which ensure that these new entrants work towards success besides the management and existence of the incumbent firms.
These authors successfully use the examples of IBM and Microsoft to illustrate these economies of scope. The rise and fall of these incumbent firms clearly indicates the force of the wave’s outbursts in the new era. Additionally, it explains why scope diseconomies play a crucial role in the new markets and technological era. However, the market features and forces in every new era have a great impact on these firms and the outcomes of these forces. Nevertheless, the considerations of the free forces of the free economy and the way the firms are motivated to exist have not been adequately handled. While the new era in the market introduces new forces and competition, which shift demand in the market, it is unclear to determine the place and focus of the mission. One of the similar cases is evident in the education industry, where schools offering private education use and share the same assets in the market, and still remains the most successful and in control of the education industry. The private schools control the costs of education as well as the amount that the educators are willing to take up as salaries. In this regard, it infers that the diseconomy of scope works for the disadvantage of these private firms.
As mentioned in the Schumpeterian Competition and Diseconomies of Scope article, market competitions bring about new markets, and innovation brings about new technologies. Nevertheless, prior to the emergence of the new markets, several companies have equal levels of technology in their production. However, the other article, “Uninformative Advertising as an Invitation to Search” asserts that intensifying publicity attracts customers to buy products, which consequently increases revenue for the firms. Advertising is the most popular method used to increase the publicity of the products produced by different firms in different industries. Innovations are equally important to advertise and inform the customers of the new technologies. For instance, Apple and Samsung both possess the core technologies and are perfect producers of the mobile phones using these technologies with great competitions. When either of these mobile phone companies develops a new technology, advertisement is the best method to popularize this invention. Therefore, an accurate conclusion is that every failure or success in the new market or new technological era have their meaning and are shaped and solved by the same markets. The market control is an important perspective of beating competition and avoiding conflicts between firms with closely shared assets.
Timothy Bresnahan, Shane Greenstein, & Rebecca Henderson. “Schumpeterian competition and diseconomies of scope; illustrations from the histories of Microsoft and IBM.” Harvard Business School. Pp. 1-69