The Equilibrating and Disequilibrating Effects of Entrepreneurship: Revisiting the Central Premises

Research summary We review existing theoretical propositions on the equilibrating and disequilibrating effects of entrepreneurship in the market process. We then introduce a game theoretical model of the market process and employ computer simulation to analyze it through time. The formal analysis suggests that entrepreneurship as the creation of new opportunities may not always be disequilibrating, and entrepreneurship as the discovery and exploitation of existing opportunities may not always be equilibrating. We identify specific conditions that produce counterexamples to the generic equilibration and disequilibration propositions previously considered to be the central premises of entrepreneurship research. Managerial summary Many entrepreneurs advance society by building businesses around creative new ideas. Yet, other entrepreneurs start businesses by discovering opportunities to profit without necessarily innovative ideas. In reality, most entrepreneurship involves both creation and discovery. We run computer simulations of a small hypothetical economy to analyze the impact of creation and discovery actions on the extent to which the economy contains unexploited opportunities at any given time. Our results largely support previous ideas on how entrepreneurs help clear the markets by discovering opportunities or how innovations disrupt the market through creative destruction. Our results also highlight ways in which these ideas may be oversimplified and may have boundary conditions.