The Process of Creative Destruction, Illustrated: The US Retail Industry

Abstract

The process of “creative destruction,” whereby new technologies and business models displace old ones, is key to growth and innovation. The evolution of the retail industry illustrates why it is beneficial and sheds light on the pitfalls of current legislative and regulatory efforts to limit it.¹

Report

Conclusion

The story of the retail industry is one of creative destruction: disruptors relentlessly displacing small, less-efficient retailers before facing the same disruption that forces them to compete, often unsuccessfully, with new entrants. Innovation in retail is an endless race to greater efficiency and a better consumer experience. This process generates a cycle—a pattern of disruptive innovations, a reaction from displaced competitors, and a range of antitrust actions aimed at slowing down the process of creative destruction large retailers initiated, and the ultimate success of the new model, until the emergence of the next retail business model.

After more than a century, novel forms of large-scale stores maintain competitiveness and innovation with low prices. When incumbent retailers are faced with new, innovative competitors, the power of creative destruction will unfold and drive the incumbent retailers to bankruptcy, thereby opening the doors for the more-efficient and innovative retailer to become an incumbent firm in the market; inevitably, the cycle of creative destruction will repeat itself with a new incumbent. Consequently, from the Robinson-Patman Act to today’s antitrust techlash against online retailers, the backlash toward novel retailing business models rests upon misguided and unsubstantiated claims—the use of predatory pricing—that retailers are harming consumers, distorting competition, and stifling innovation. However, the reality is diametrically the opposite: The disruptive nature of large retailers generates vast consumer benefits, representing the ideal process of dynamic competition.

Takeaway: The process of “creative destruction,” whereby new technologies and business models displace old ones, is key to growth and innovation.

Conclusion quoted verbatim from the report.

Notes

1. Aurelien Portuese & Trelysa Long, The Process of Creative Destruction, Illustrated: The US Retail Industry (Info. Tech. & Innovation Found., Oct. 3, 2022), https://itif.org/publications/2022/10/03/the-process-of-creative-destruction-illustrated-the-us-retail-industry/. Summary quoted verbatim from the ITIF publication page, https://itif.org/publications/2022/10/03/the-process-of-creative-destruction-illustrated-the-us-retail-industry/. ↩

Cite as: Aurelien Portuese & Trelysa Long, The Process of Creative Destruction, Illustrated: The US Retail Industry (Info. Tech. & Innovation Found., Oct. 3, 2022), https://itif.org/publications/2022/10/03/the-process-of-creative-destruction-illustrated-the-us-retail-industry/

Header image: Mall 205 (Portland, OR) interior.jpg by ECTran71, CC BY-SA 4.0, via Wikimedia Commons.