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How does a Market System result in more innovation than a Centrally Planned System?
Wiki User
∙ 13y ago
The fact that more innovation takes place within a market system is due to the increased competition in the free market. As any firm is able to enter and exit the market, firms have to work hard to maintain their profitable status. This is among others done by innovation; creating new, profitable products with which they can gain a great market share and stay in business. Being innovative and reacting to changing circumstances and emerging opportutinities are the key factors for the survival of the firm.
In a centrally planned economy however, this discipline of the market is less present and hence there is less incentive for innovation. Only one supplier (the government) is present and has all market power, so why should it bother about innovation to increase its profitable status or make its products more attractive? Consumers have no choice anyway.
Wiki User
∙ 13y ago
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