Innovation Diffusion through Schumpeterian Competition

Abstract

The modern Innovation Diffusion theory is based on explaning the quintessential role of innovation and innovation diffusion in the process of long-term industrial change and economic evolution. This new development has been greatly supported and stimulated by the rediscovery of the seminal contributions on the subject by Joseph Alois Schumpeter (1883–1950). Schumpeter argued (1934, 1939, 1950) that it was not price competition but the competitive behaviour of entrepreneurs, developing new technical and organizational possibilities, that was a most powerful source of competitive advantages of firms or industries resulting in “creative gales of destruction”. Schumpeter assumed that the entrepreneurs’ innovative behaviour and the behaviour of their imitators, based on the changing profit expectations during the growth of an industry, were the major determinants of a temporal S-shaped pattern of growth. The introduction of clusters of new interconnected innovations and their diffusion within an industry were considered to be the driving forces behind the long-term economic cycles. Thus, the contributions of Schumpeter pointed on the dynamic evolutionary character of economic development based on the entrepreneur activities.