By Nicolas Petit (European University Institute) & David Teece (Institute for Business Innovation)
This paper gives a fresh account of competition in the digital economy. Our understanding is that usual static monopoly narratives paint with too broad a brush. We suggest that some leading firms in the digital economy have strong dynamic capabilities, and they are not durable monopolists. A few strategic errors by management and they are deeply impaired. We derive the theoretical implications of this, and outline what’s required to advance a deeper understanding of the digital economy. We look at policy and provide a normative formulation of the competitive process, highlighting dynamic competition and distinguishing it from static competition. We consider the economics of big data and big data management and explore how strong dynamic capabilities are necessary for Big Tech companies to get ahead and stay ahead. We explore different types of economic rent, suggest a modified welfare standard for competition policy, and formulate preliminary tests and predictors to measure dynamic competition.
