Description

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A proposal for moving from price-centric to innovation-centric competition policy, reviewing theory and evidence on economic incentives for innovation.

Competition policy and antitrust enforcement have traditionally focused on prices rather than innovation. Economic theory shows the ways that price competition benefits consumers, and courts, antitrust agencies, and economists have developed tools for the quantitative evaluation of price impacts. Antitrust law does not preclude interventions to encourage innovation, but over time the interpretation of the laws has raised obstacles to enforcement policies for innovation. In this book, economist Richard Gilbert proposes a shift from price-centric to innovation-centric competition policy. Antitrust enforcement should be concerned with protecting incentives for innovation and preserving opportunities for dynamic, rather than static, competition. In a high-technology economy, Gilbert argues, innovation matters.

Gilbert considers both theory and available empirical evidence on the relationships among market structure, firm behavior, and the production of new products and services. He reviews the distinctive features of the high-tech economy and why current analytical tools used by antitrust enforcers aren't up to the task of assessing innovation concerns. He considers, from the perspective of innovation competition, Kenneth Arrow's “replacement effect” and the Schumpeterian theory of market power and appropriation; discusses the effect of mergers on innovation and future price competition; and reviews the empirical literature on competition, mergers, and innovation. He describes examples of merger enforcement by US and European antitrust agencies; examines cases brought against Microsoft and Google; and discusses the risks and benefits of interoperability standards. Finally, he offers recommendations for competition policy.

About the Author

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Richard J. Gilbert is Emeritus Professor of Economics at the University of California, Berkeley. He worked as Deputy Assistant Attorney General for Economics in the US Department of Justice's Antitrust Division from 1993 to 1995.

Praise For…

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"Innovation Matters is a timely and important book that pulls together the latest economic thinking about innovation, takes us far beyond the sterile ArrowSchumpeter debate, and sets out a compelling roadmap for improving antitrust law."
– A. Douglas Melamed, Professor of the Practice of Law, Stanford Law School

"How should one rethink competition policy in the world of hightech firms? Using a skillful mix of economic reasoning and illuminating case studies, Richard Gilbert explains why the solution is to move towards a reformed antitrust policy: one that also targets mergers that discourage innovation and new entry. This fascinating book is an absolute mustread for all scholars and policy makers interested in innovation and its relationship with market competition and the new hightech economy."
– Philippe Aghion, Professor at Collège de France and London School of Economics

"There is no better guide for understanding the connection between antitrust enforcement and innovation than the work of Richard Gilbert."
– The Antitrust Source