May 25, 2009 by Stan Liebowitz
Stan Liebowitz is the Ashbel Smith Professor of Economics at the University of Texas at Dallas, School of Management.
Economists and non-economists alike tend to be familiar with the phrase “creative destruction” and its implications that, although established firms may bemoan new innovation upsetting apple carts in their industry, and government may try to protect them from those changes, in the end we are all better off because of the creative commotion which is part and parcel of the competitive process and the march of invention.
When, for example, television became popular, movie admissions shrank by 80 percent as the new, superior (the convenience of being entertained in one’s living room) technology usurped a large portion of the market from the older technology. This was a good thing for consumers even if it was harmful to the movie studios (which would eventually produce many television programs, ameliorating some of the harm).
Unfortunately, not all destruction that occurs in markets is of the creative variety. Unfortunately, confusion between good destruction and bad destruction is especially problematic in markets dominated by intellectual property.