existing ones. As we saw in Chapter 10 , the Austrian economist Joseph
Schumpeter emphasized the process of “creative destruction” as a crucial
means by which one firm tries to usurp another firm’s market power.
Such competition through innovation is an important force driving
improvements in our long-run living standards.
There are strong incentives for oligopolists to compete with each other through pricing,
advertising, product quality, and innovation. Consumers usually gain from such competition.An obvious example of oligopolistic competition through innovation is
Apple’s ongoing development of new products. In the last decade, Apple
has been highly successful with its iPod, iPhone, and iPad mobile devices
and also its iMac desktop computer. In each case, the features and
remarkable consumer appeal of the products not only took sales away
from Apple’s rivals (such as Samsung and Nokia) but also expanded the
total market by attracting consumers who previously owned no such
products. But Apple’s enormous success has attracted the entry of rivals,
as is so often the case. Microsoft, which for many years focused only on
the development of software, has now entered the market for electronic
devices. Google has also entered the market for smartphones. All of these
firms are also competing actively against Amazon’s Alexa in the new
market for digital assistants: Apple’s Siri, Microsoft’s Cortana, and
Google’s Assistant. The next few years should see some fascinating rivalry
in this product space.