Every economics student learns that the free market is more efficient than monopoly or oligopoly. Too little competition leads to higher prices for consumers and greater profits for the monopolist or oligopolist. This analysis concentrates on the static question of resource allocation. Joseph Schumpeter (1942) was the first to point out that we should also consider gains in dynamic efficiency. He argued that the strength of capitalism was the continuous invention of new products and processes. The cycle of creative destruction caused bad firms go under and replaced old products with newer and better ones. This enables output and consumption to grow perpetually - increasing the wealth for all.

Authors

Richard Blundell
Richard Blundell

CPP Co-Director

Richard is Co-Director of the Centre for the Microeconomic Analysis of Public Policy (CPP) and Senior Research Fellow at IFS.

Rachel Cassidy
Rachel Griffith

CPP Co-Director, IFS Research Director

Rachel is Research Director and Professor at the University of Manchester. She was made a Dame for services to economic policy and education in 2021.

Person graphic

John Van Reenen

Suggested citation

R, Blundell and R, Griffith and J, Van Reenen. (1993). 'Innovations and market structure' (1993)

More from IFS

Understand this issue

Policy analysis

Academic research