Creative destruction refers to the Austrian economist Joseph Schumpeter’s view of market competition, whereby market-dominating incumbents are continually replaced by new, innovative industry entrants. Thus, Schumpeter’s emphasis on innovation and entrepreneurship points to rapid change and unpredictability in industry structures. According to Schumpeter (1883–1950), entrepreneurial activity upsets—that is, moves the market away from—the steady-state equilibrium typically theorized in neoclassical economics. Over time, as imitation erodes the profits created by successful innovations, markets return to equilibrium. This new equilibrium is expected—by the theory of creative destruction—to be short-lived, though, because new innovations will continually emerge. Innovations—or what Schumpeter considered “new combinations”—can change industries in five ways: (1) product innovations, (2) process innovations, (3) opening of new markets (now often called “blue ocean strategy” in the strategic ...

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