Innovation Matters: Competition Policy for the High-Technology Economy

Article Source: The MIT Press, 2020
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Antitrust authorities should adapt their analysis to protect innovation and future competition. High-tech firms may use strategic acquisitions or product design to exclude competitors.


Policy Relevance:

Antitrust authorities should de-emphasize market definition. Broad technology licensing supports innovation.


Key Takeaways:
  • The high-tech economy has distinct features, including:
    • Potential for industry disruption.
    • Network effects, arising when a system gains in value to users as more people join.
    • The importance of intellectual property.
    • Many tech firms are platforms that coordinate interactions between different groups, such as merchants and consumers.
  • Traditional antitrust emphasizes the concepts of “market share” and “market definition,” a methodology that might not be useful in promoting innovation or assessing threats to future markets.
  • High-tech firms acquire potential competitors before antitrust enforcers can act; however, barring acquisitions of startups by high-tech firms could discourage innovation, because startups’ potential to join with larger firms incentivizes innovation.
  • Antitrust cases in the United States and Europe are often resolved by consent decrees, some of which have restored innovation.
    • When the parties to a merger agree to transfer research and development (R&D) assets to a third party, the recipient rarely sustains the desired innovation.
    • When the merging parties undertake to license their technology to many other firms, R&D is more likely to be sustained.
  • Antitrust authorities challenged Google’s method of displaying shopping search results, which favored Google’s affiliates; dominant tech firms could design products so as to eliminate competition, making related technologies unattractive to investors.
  • Interoperability standards promote innovation by allowing many firms to develop complementary products, but dominant firms can also promote standards that exclude rivals.
  • Antitrust authorities and courts should:
    • De-emphasize market definition in assessing future competition.
    • Require merging firms to show evidence the merger is beneficial.
    • Increase scrutiny of firms’ acquisitions of potential competitors.
    • Recognize that compulsory licensing promotes innovation.
  • An innovation should escape antitrust scrutiny if it offers substantial benefits and is not accompanied by exclusionary conduct; however, an innovation that offers only marginal benefits should be subjected to closer analysis under a “rule of reason.”
  • Some support the break-up of large tech firms into smaller entities, but such structural remedies may do more harm than good.
    • Structural remedies are hard to design to benefit consumers.
    • Structural remedies are costly to enforce.
    • Structural remedies may harm innovation.
    • If the market enjoys network effects, a dominant firm will re-emerge.



Richard Gilbert

About Richard Gilbert

Richard Gilbert is a professor emeritus of economics at the University of California, Berkeley. He is also Chair of the Berkeley Competition Policy Center. Professor Gilbert's research specialties are in the areas of competition policy, intellectual property, and research and development.

Professor Gilbert was Chair of the Department of Economics at Berkeley from 2002 to 2005. Additionally, he worked as Deputy Assistant Attorney General for Economics in the U.S. Department of Justice’s Antitrust Division from 1993 to 1995.