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Innovation And The Limits Of Antitrust

Author

Listed:
  • Geoffrey A. Manne
  • Joshua D. Wright

Abstract

Frank Easterbrook's seminal analysis of error-cost minimization in The Limits of Antitrust has special relevance to antitrust intervention in markets where innovation is a critical dimension of competition. Both product and business innovations involve novel practices. Historically, the economics profession has tended initially to rely upon monopoly explanations for such practices. Courts have reacted with similar hostility. But almost always there has followed a more nuanced economic understanding of the business practice that recognized its procompetitive virtues. Antitrust standards have adjusted occasionally to reflect that new economic learning. This sequence has produced a fundamental link between innovation and antitrust error that transcends the uncontroversial point that the probability of false positives and their social costs are both higher in the case of innovation and innovative business practices. We discuss some principles for applying Easterbrook's error-cost framework to innovation. We then discuss the historical relationship between antitrust error and innovation. We conclude by challenging the conventional wisdom that the error-cost approach implies that the rule of reason, rather than per se rules, should apply to most forms of business conduct. We instead identify simple filters to harness existing economic knowledge to design simple rules that minimize error costs. We make five such proposals.

Suggested Citation

  • Geoffrey A. Manne & Joshua D. Wright, 2010. "Innovation And The Limits Of Antitrust," Journal of Competition Law and Economics, Oxford University Press, vol. 6(1), pages 153-202.
  • Handle: RePEc:oup:jcomle:v:6:y:2010:i:1:p:153-202.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhp032
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    References listed on IDEAS

    as
    1. Richard Gilbert, 2007. "Holding Innovation to an Antitrust Standard," CPI Journal, Competition Policy International, vol. 3.
    2. Liebowitz, S J & Margolis, Stephen E, 1990. "The Fable of the Keys," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 1-25, April.
    3. Daniel F. Spulber, 2008. "Consumer Coordination In The Small And In The Large: Implications For Antitrust In Markets With Network Effects," Journal of Competition Law and Economics, Oxford University Press, vol. 4(2), pages 207-262.
    4. Dennis W. Carlton, 2001. "A General Analysis of Exclusionary Conduct and Refusal to Deal - Why Aspen and Kodak are Misguided," NBER Working Papers 8105, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Frédéric Marty, 2021. "Competition and Regulatory Challenges in Digital Markets: How to Tackle the Issue of Self-Preferencing?," Working Papers halshs-03227392, HAL.
    2. Andrey Shastitko & Claude Ménard & Natalia Pavlova, 2018. "The curse of antitrust facing bilateral monopoly: Is regulation hopeless?," Russian Journal of Economics, ARPHA Platform, vol. 4(2), pages 175-196, June.
    3. Joshua Wright, 2011. "Does Antitrust Enforcement in High Tech Markets Benefit Consumers? Stock Price Evidence from FTC v. Intel," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(4), pages 387-404, June.
    4. Svetlana Avdasheva & Polina Kryuchkova, 2013. "Law And Economics Of Antitrust Enforcement In Russia," HSE Working papers WP BRP 05/PA/2013, National Research University Higher School of Economics.
    5. Thomas W. Hazlett & Joshua D. Wright, 2017. "The Effect of Regulation on Broadband Markets: Evaluating the Empirical Evidence in the FCC’s 2015 “Open Internet” Order," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(4), pages 487-507, June.

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    More about this item

    JEL classification:

    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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