Competition Policy and the Incentive to Innovate: The Dynamic Effects of Microsoft v. Commission

Innovation and Economic Growth and Competition Policy and Antitrust

Article Snapshot


Daniel Spulber


Yale Journal on Regulation, Vol. 25, No. 2, 2008


This paper assesses competition policy in Europe.

Policy Relevance

European regulators targeted a firm for its success. This discourages innovation. Regulators targeted a multinational firm, hindering trade and global growth.

Main Points

  • The European Commission’s (EC’s) rulings against Microsoft show regulators will use competition law aggressively in cases involving intellectual property.
    • Microsoft must give rivals access to proprietary information about its server operating system so they can build competing products.
    • Microsoft was penalized for selling a media player with its operating system.
  • The rulings erode firms’ incentives to innovate over time (“dynamic effects”).
  • Requiring a firm to let rivals access its invention lets rivals free-ride.
    • The rivals will innovate less on their own.
    • Products become more similar, meaning less innovation overall.
  • The EC ruling targets a firm for selling a product used by many, not for bad actions that hurt consumers. Success is penalized, and rivals are rewarded in court.

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