Analysis On The Social Welfare Of Disruptive Innovation

Modern society and enterprises pay more and more attention to innovation. As an important kind of innovation, disruptive innovation have had a growing impact on our lives. Previous studies have shown that when a successful disruptive innovation product appears in the market, it will have a significant impact on the profits of competitors and the entire community of consumer within the industry. In previous papers on disruptive innovation, scholars mainly study from the producer perspective, or from the incumbent, or from entering business, or from the perspective of the two companies to study the influence of disruptive innovation. Study on the effects of disruptive innovation from the perspective of society as a whole is relatively rare. But in our real life, when a successful disruptive innovation product appears in the market, corporate profits will change and so do the consumer surplus. When we study the impact of disruptive innovation, we not only consider the impact of disruptive innovation on corporate profits, but also consider the impact on the consumer surplus. Basing on the above background, from the entire social perspective, this paper studys the whole impact of disruptive innovation. By making a study on the disruptive innovation on the impact of society as a whole, we can deepen our understanding of the theory of disruptive innovation, and it also has some theoretical and practical significance.In this paper, on the base of reading and summarizing a large collection of the existing literature on disruptive innovation and social welfare, I divide the market into two stages. In the first stage is I create a duopoly monopoly social welfare function model before the occurrence of disruptive innovation. In the second stage, after the occurrence of disruptive innovation, basing on the degree of erosion of disruptive innovation on the main market, we divide disruptive innovation into three cases: disruptive innovation occurred in the major markets, that is, only consumers in major markets buy disruptive products; disruptive innovation occurs in the secondary market, that is, only consumers in secondary market buy disruptive products; disruptive innovation occurs simultaneously in major markets and secondary markets,and consumers in the main market and the secondary market buy disruptive products. Three different types after the occurrence of disruptive innovation model of social welfare function were constructed. By solving the total social welfare before and after the occurrence of disruptive innovation, we can deepen the analysis of the impact of disruptive innovation on the total amount of social welfare. By comparing overall social welfare before and after the occurrence of disruptive innovation, we can draw a general effect of disruptive innovation on the overall social welfare. When a disruptive innovation can improve the overall social welfare, the government should take measures to encourage their behaviors; when a disruptive innovation reduces the overall social welfare, the government should set up barriers to limit it enters.