Beware Business Fads: Disruptive Innovations and Competition Policy

Abstract

Business has its fads. Most of the time these involve changes in management practices - re-engineering the corporation, total quality management and the like. But occasionally they move beyond firm boundaries. A couple of decades ago, it was all about outsourcing and supply chain management. But since the late 1990s, and especially alongside the evolution of the commercial internet, the fad de jour has been disruption.

Disruption is seemingly everywhere and happening to everything. And like all such things it is a coin with two sides. On one side is a notion that would warm a competition regulator's heart: disruptive entrepreneurs are all about unleashing new technologies to bring down sleepy incumbents. On the other side, are the incumbents themselves. Disruption holds that they have never been more vulnerable; just a few ounces of complacency away from doom.

Combine these two sides and competition regulators and the laws that house them are themselves argued to be disrupted. When entry is free, often and strong and incumbents are petrified, those promoting competition through regulation can go home. There is simply no more than they can do. At least, that is what the direct implication of the disruption notion would imply.

However, like all fads, while there is a grain of truth at their heart, I will argue here that, fundamentally, little has changed. Indeed, once we unpack what we know about disruption and combine it with some hard-headed economics, we see that the role for competition regulators is as strong as ever and, surprisingly, how they go about their business is as traditional as it has ever been. The plan for this paper is as follows. First, I outline the main theory of disruption as provided by Clay Christensen. Next, I relate it to what is traditionally known from economic theory before turning to look at the evidence for disruption. I then explain how the evidence suggests that not much has changed for competition authorities and they still have an important role. I conclude by mentioning some issues in relation to the nascent sharing economy.