Handbook on the Economics and Theory of the Firm
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Handbook on the Economics and Theory of the Firm

Edited by Michael Dietrich and Jackie Krafft

This unique Handbook explores both the economics of the firm and the theory of the firm, two areas which are traditionally treated separately in the literature. On the one hand, the former refers to the structure, organization and boundaries of the firm, while the latter is devoted to the analysis of behaviours and strategies in particular market contexts. The novel concept underpinning this authoritative volume is that these two areas closely interact, and that a framework must be articulated in order to illustrate how linkages can be created.
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Chapter 30: Creating Novelty through Vertical Relationships between Groups of Complementary Players

Martin Fransman


Martin Fransman 30.1 INTRODUCTION This chapter deals with the creation of novelty through vertical symbiotic relationships between groups of complementary players. The chapter begins with a general discussion of the creation of novelty in economics by drawing on some of the work of Adam Smith (dealing with innovation in machinery) and Joseph Schumpeter (and his distinction between invention and innovation). The discussion goes on to examine the importance of what is called the value-creating conjecture, which plays a key role in the innovation process. A theory of open symbiotic innovation is then developed in order to elaborate on the journey taken by the value-creating conjecture, which may or may not end up being embodied in marketed new products, processes and technologies, forms of organization, and markets and ways of marketing. Finally, the approach is applied to the innovation process in the new ICT ecosystem. 30.2 NOVELTY Socio-economic systems change primarily through the endogenous creation of novelty. This novelty comes essentially in the form of new knowledge. This new knowledge becomes part of the thinking of the players in the system and becomes embodied in the new products and services, new processes and technologies, new forms of organization and new markets and ways of marketing that they create. As their thinking changes and they innovate so novelty is injected endogenously into the system and ripples through it as other players are affected and respond. It is the creation of new knowledge that differentiates human socio-economic systems from complex biological and physical...

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