The technology discontinuous-evolution trend tools of classical TRIZ are known to offer unrivalled means by which future generations of products and process might be predicted. They are, however, relatively weak when it comes to answering questions concerning when a particular innovative step is or is not likely to succeed in the market.
This issue of innovation timing is vitally important to any organization. It is at the same time an extremely complex question to try and answer due to the myriad different factors that can influence the final success-or-fail outcome.(Mann, Darrell; 2006) The factors to be considered are: – Rising conflicts between linear market trend directions – Business model feasibility – where the essential elements required for any innovation to succeed are defined, and their importance to timing issues discussed – If the innovation is incrementally enhancing, discontinuously enhancing, or discontinuously inferior or disruptive – Are there hidden failures in an existing market – Are there symbio-genesis opportunities that can be created and exploited- Dynamism in the market sector in the recent past Market structure With a large number of players, selling almost similar types of products in the same market, targeting a similar customer base; makes a good case for perfect competition. Through innovation and R & D, companies try to differentiate their products from each other, making it a monopolistic competition. Analyzing the market structure for the pharmaceutical industry, it consists of numerous players, all of whom hold only a small market share of the industry.
In a bigger, richer world, Glaxo Wellcome is the second largest revenue earning company in pharmaceuticals, though it only holds 4. 7% market share. It is only led in the market by Novartis, created by the 1996 merger of Sandoz and Ciba-Geigy. The pharmaceutical industry engages in monopolistic competition.
Monopolistic competition exists when there are many sellers, producing differentiated products, and the firms are involved in vertical and/or horizontal integration.Vertical integration happens when a company is involved in all levels of manufacturing for a product, from gathering the raw materials to distributing the finished goods. Horizontal integration happens when a business expands in size and scope. As mentioned earlier, firms in pharmaceuticals hold only a small percentage of the market share. They manufacture numerous products, often specializing in product lines.
For instance, Bristol-Myers Squibb is concerned in developing treatments for: cancer, cardiovascular and metabolic therapy, anti-infectives, dermatological problems, central nervous system disorders, diabetes, and immunological disorders. From an Industrial Organization’s scenario, the question is if an economic environment portrayed by the presence of big companies and a certain level of market concentration performs better, in terms of dynamic efficiency, than a perspective of perfect competition.Arrow can be considered the two major researchers on the issue. Major part of the literature on innovation, particularly in the Industrial Organization framework, focuses on the two Schumpeterian Hypotheses (Schumpeter, 1942). The first focuses on the relationship between innovation and monopoly power and emphasizes the idea that concentrated market structure boosts innovation activity, while, the second, is focused on the relationship between firm size and the attitude to invest in innovative activities.As per Shumpeter (1942), monopolists have the more likelihood of attracting more qualified scientist and technicians and have, in general, few financial constraints.
R&D investments are characterised by less possibility of success than investment in physical capital; as compared with their potential revenues, which are usually very high (Sherer et al. 2000). Therefore, innovations are more likely to be performed by firms who are able to bear risk and have the ability to protect and finance their investments.Firms can apply their existing market power in order to obtain resources that could be devoted to R&D.
The final output of this process, lets the firms to preserve their market power, earn more profits that boost the original R&D investment and the firms are more likely to continue the innovative process. (Crespi; 2004,p. 7) However, Arrow (1962a) found that perfect competition was the environment, which gave the major incentives to innovation. In his view, a monopolistic firm was more likely to invest in R&D less than the competitive one.The simple logic of this result is that, “a quote of the monopolist rents earned after the introduction of an innovation, are already warranted to him before the innovative process has occurred.
On the other hand, under perfect competition, it is actually the introduction of an innovation that produces all rents so, in that context; incentives to invest in R&D are greater”. In other words, a monopolist profits less than a new entrant from an innovation because the monopolist will replace part of his existing profits whereas for the new entrant such profits are completely new. (Crespi; 2004,p. 8)