Mergers and Innovation

Innovation and Economic Growth and Competition Policy and Antitrust

Article Snapshot


Michael L. Katz and Howard Shelanski


Antitrust Law Journal, Winter 2006


This paper asks how competition policy should adapt to innovation.

Policy Relevance

Antitrust law should adapt to innovation, or it will hinder it. To adapt, policymakers should try to predict how business acts will affect consumers in the future.

Main Points

  • Some argue that innovation should mean fewer antitrust cases, because regulation can hinder innovation, and a dominant firm is likely to be overtaken by an innovative newcomer sooner in any case.

  • Others argue that mergers should be policed more aggressively in “innovation markets” or “technology markets.”

  • Today, competition law is focused on prices, production levels, and other measurements in the short run.

  • For merger policy to take innovation into account, policymakers should:
    • De-emphasize market share.
    • Consider research and development.
    • Identify firms with the same skills and assets.
    • Predict how a merger would affect future consumers.

  • Because predicting future effects is hard, the law should not assume some business acts are usually bad or usually good. Courts must examine acts on a case by case basis.

  • Old measures like market share might suggest favoring a merger, but new metrics that take into account innovation might mean disfavoring it.

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