Industry innovativeness, firm size, and entrepreneurship: Schumpeter Mark III?

Wilfred Dolfsma*, Gerben van der Velde

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

13 Citations (Scopus)

Abstract

Emphasizing the dynamics in economies and industries, Schumpeter points to entrepreneurs carrying out ‘new combinations’. His work, and in particular the Theory of Economic Development, is often interpreted as praising individual entrepreneurs setting up new firms to contribute to an industry’s innovativeness. This has come to be referred to as the Schumpeter Mark I perspective. Later, however, in his Capitalism, Socialism, and Democracy, Schumpeter has rather suggested that large incumbents are best positioned to contribute to an industry’s innovativeness (Schumpeter Mark II). In this discussion, however, the possibly different effects of structural as opposed to dynamic industry competitiveness is often not taken into account. In addition, the contribution of new and small firms to industry innovativeness are often conflated. Using New Product Announcements as a measure of innovation, we find that industries dominated by small firms prove consistently and significantly more innovative than industries where large firms dominate. Taking account of industries’ structural and dynamic levels of competition, we find that high existing and increasing levels of new firms entering an industry, exercising what Schumpeter called the ‘entrepreneurial function’, actually decrease industry innovativeness. We conclude that the contribution of small firms in terms of industry innovativeness is different from that of large as well as new firms, suggesting a Schumpeter Mark III perspective.

Original languageEnglish
Pages (from-to)713-736
Number of pages24
JournalJournal of Evolutionary Economics
Volume24
Issue number4
DOIs
Publication statusPublished - 1 Sep 2014
Externally publishedYes

Keywords

  • Entrepreneurship
  • Firm entry
  • Industry dynamics
  • Industry innovativeness
  • Innovation
  • Large firms
  • New-product announcements
  • Schumpeter Mark III
  • Small firms

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