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Antitrust in Innovative Industries

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Author Info
Ilya Segal
Michael D. Whinston
Abstract

We study the effects of antitrust policy in industries with continual innovation. Antitrust policies that restrict incumbent behavior toward new entrants may have conflicting effects on innovation incentives, raising the profits of new entrants, but lowering those of continuing incumbents. We show that the direction of the net effect can be determined by analyzing shifts in innovation benefit and supply, holding the innovation rate fixed. We apply this framework to analyze several specific antitrust policies. We also show that, in some cases, the tension does not arise, and policies that protect entrants necessarily raise the rate of innovation. (JEL K21, L13, L14, L40, O30)

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File URL: http://hdl.handle.net/10.1257/aer.97.5.1703
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File URL: http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=5&article=7&issue_date=December2007
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 5 (December)
Pages: 1703-1730
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Handle: RePEc:aea:aecrev:v:97:y:2007:i:5:p:1703-1730

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  1. John Vickers, 2009. "Competition Policy and Property Rights," Economics Series Working Papers 436, University of Oxford, Department of Economics. [Downloadable!]
  2. Norbäck, Pehr-Johan & Persson, Lars, 2008. "Entrepreneurial Innovations, Competition and Competition Policy," CEPR Discussion Papers 6823, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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