The Innovation Defence

Abstract

Innovation effects of alleged anticompetitive behaviour are being considered in a significant number of cases. The process should involve competition regulators assessing a tradeoff between allocative and dynamic efficiency. Those innovation effects can be used both in defence of firms' actions and in challenging anti-competitive activities. Such effects need to be carefully examined on a case by case basis as they depend on: the type of antitrust behaviour; the history of the industry; the nature of innovation; and, the economics of innovation in that market. With disruptive technologies a "natural" dominance may evolve and this implies that restrictive trade practises deserve greater scrutiny. In merger reviews, a history of accumulated incremental innovation with long term projects and substantial scale economies in R&D should lessen competition concerns but regulators should be wary of alleged efficiencies that lower R&D budgets. This involves looking beyond measures of concentration to the roles different sized firms play in bringing innovations to market.