Innovation isn’t innovative, large companies pursue iterative changes to protect market position rather than disruptive innovation

Again, Arrow’s scholarship is instructive. Arrow argues that when dominant companies innovate, they do so in an iterative manner, rather than in a way that is likely to bring about leaps in technological advancement.111 Their innovation follows the already-established path, or else they risk diminishing the value of their existing assets and losing their entrenched market positions. Correspondingly, it is maverick, challenger firms that are likely to produce disruptive, path-breaking innovations, as it is these outsiders that need to create genuinely new products and markets in order to thrive.112 The pharmaceutical industry is illustrative. Dominant pharmaceutical companies—‘Big Pharma’—typically justify high drug prices on Schumpeterian grounds. High prices, and high profits, are necessary to make the investment in R&D required to generate new pharmaceuticals.113 Yet, most drugs developed by Big Pharma are so-called ‘me too’ drugs, only slight molecular variations of existing drugs. Of the 415 pharmaceuticals approved by the US Food and Drug Administration between 1998 and 2002, only 14 per cent were new innovations, 9 per cent represented functional improvements on existing drugs, and the remaining 77 per cent were me too drugs that delivered no functional improvement.114