《《competition_and_innovation》.pdf

Chapter 26 _________________________ COMPETITION AND INNOVATION * Richard J. Gilbert The Department of Justice and the Federal Trade Commission have frequently raised innovation concerns as reasons to challenge mergers. This chapter surveys the economic theories of innovation incentives and considers how the theory may inform antitrust analysis for merger investigations and other conduct that involve innovation. Competition can promote innovation by reducing the value of failing to invest in research and development. However, with non-exclusive intellectual property rights, competition can reduce innovation incentives by lowering post-innovation profits. There is some empirical support for these economic theories. The chapter concludes that economics can inform antitrust analysis for mergers and other conduct that could affect innovation, although it is important that antitrust analysis carefully consider the key factors that drive innovation incentives. 1. Introduction Although U.S. antitrust enforcement has largely focused on arrangements that increase prices, market structure and conduct also may affect the supply of new products and improvements to existing products, with enormous consequences for economic welfare. Recently the effects of market structure on innovation have gained in importance as a consideration in antitrust policy and in the thinking of the antitrust agencies. The change is particularly notable in merger policy. The antitrust agencies now commonly challenge mergers in part due to a concern that the mergers will delay or prevent innovation. This chapter reviews the economic literature relating incentives for innovation to market structure and conduct. The emphasis in this chapter is on the relationship, if any, between competition in today’s market and incentives to invest in research and development (RD) for tomorrow’s products.