What is Dynamic Efficiency
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This document discusses innovation and dynamic efficiency. It defines innovation as putting new ideas into action, including product, process, and business model innovations. It also discusses Joseph Schumpeter's concept of "creative destruction" where innovation disrupts existing firms. The document then discusses the economic concept of supernormal profits driving firms to innovate and examples where newer firms use innovation to challenge industry leaders through new technologies and business models.
What is Dynamic Efficiency
- 2. Google and Apple’s RevenueBasics of Dynamic Efficiency Innovation is putting a new idea or approach into action. Innovation is 'the commercially successful exploitation of ideas' • Product innovation • Small-scale and frequent subtle changes to the characteristics and performance of a good or a service • Process innovation • Changes to the way in which production takes place or is organised • Changes in business models and pricing strategies • Innovation has demand and supply- side effects in markets and the economy as a whole Austrian economist Joseph Schumpeter (pictured) coined the term creative destruction which refers to the upheaval of the established order in the pursuit of innovation. Smaller disruptive businesses often challenge existing firms with market power!
- 3. Supernormal Profits & Dynamic Efficiency MC Price and Cost Output AC MRProfit Max: MC=MR P1 Q1 C1 Supernormal Profit AR
- 4. Examples of Dynamic Efficiency • May 2016 - MasterCard is to start trialing Pepper the robot in Pizza Hut restaurants in Japan and the United States • May 2016 Xiaomi, the Chinese smartphone maker launches a $610 drone that undercuts market leader DJI by almost 25 per cent. • Dec 2015: Porsche to make electric sports car in €700m project - aimed at challenging Tesla's dominance of the battery-powered sports car market • Dec 2015: Ford says it will invest $4.5bn (£3bn) to expand its fleet of plug-in and hybrid electric vehicles, and will start selling 13 new electric models by 2020. • Nov 2015: Huawei reveals a new quick-charge battery