Author(s)
Richard Gilbert and Willard Tom
Source
Antitrust Law Journal, Vol. 69, pp. 43-86, 2001
Summary
This paper looks at how competition regulators view innovation.
Policy Relevance
Regulators’ traditional focus on factors like prices would not work well for technology markets.
Main Points
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The Department of Justice and the Federal Trade Commission now look more closely at the links between innovation, intellectual property rights (IP), and competition. But studies do not show that more or fewer competing firms means more innovation.
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Technology sectors are different from other markets and a few firms can dominate:
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High research costs mean that new ideas need strong IP protection and prices above production costs.
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“Network effects” arise for products that become more valuable when more people use them. One fax machine is useless, because there is no one to fax, but it becomes more useful as fax machines proliferate.
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In the antitrust case against Microsoft, traditional analysis would condemn Microsoft for pricing below cost, and miss the benefits for consumers of network effects; traditional analysis also understates the harm Microsoft could do by undermining rivals.
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When Intel withheld proprietary information from firms suing it for patent infringement, the FTC argued this harmed competition. While the firms sold related products rather than competing directly with Intel, they needed Intel’s information negotiate fairly.
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Everyone can be harmed if a firm settles and abandons its challenge to a patent that is probably invalid. The firm has no reason to develop a competing product and others are also prevented from using the idea in the challenged patent.
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Patent pools, in which firms agree to license each other’s patents, might limit competition and harm consumers, if the firms would have competed otherwise. But these pools can help consumers, if endless litigation would have gone on without the pool. Distinguishing the two situations is hard.