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Antitrust in Innovative Industries

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  • 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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Bibliographic Info

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

Note: DOI: 10.1257/aer.97.5.1703
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  1. Robert M. Hunt, 2002. "Patentability, industry structure, and innovation," Working Papers 01-13, Federal Reserve Bank of Philadelphia.
  2. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
  3. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-80, January.
  4. Hugo Hopenhayn & Gerard Llobet & Matthew Mitchell, 2006. "Rewarding Sequential Innovators: Prizes, Patents, and Buyouts," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1041-1068, December.
  5. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 429-36, March.
  6. Adam B. Jaffe & Josh Lerner & Scott Stern, 2002. "Innovation Policy and the Economy, Volume 2," NBER Books, National Bureau of Economic Research, Inc, number jaff02-1, octubre-d.
  7. Ilya Segal, 1999. "Contracting With Externalities," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 337-388, May.
  8. David S. Evans & Richard Schmalensee, 2001. "Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries," NBER Working Papers 8268, National Bureau of Economic Research, Inc.
  9. Richard J. Gilbert and Michael L. Katz., 2001. "An Economist's Guide to U.S. v. Microsoft," Economics Working Papers E01-300, University of California at Berkeley.
  10. Loury, Glenn C, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 395-410, August.
  11. Bolton, Patrick & Scharfstein, David S, 1990. "A Theory of Predation Based on Agency Problems in Financial Contracting," American Economic Review, American Economic Association, vol. 80(1), pages 93-106, March.
  12. Stein, Jeremy C, 1997. "Waves of Creative Destruction: Firm-Specific Learning-by-Doing and the Dynamics of Innovation," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 265-88, April.
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