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Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries

In: Innovation Policy and the Economy, Volume 2

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  • David S. Evans
  • Richard Schmalensee

Abstract

Competition in many important industries centers on investment in intellectual property. Firms engage in dynamic, Schumpeterian competition for the market, through sequential winner-take-all races to produce drastic innovations, rather than through static price/output competition in the market. Sound antitrust economic analysis of such industries requires explicit consideration of dynamic competition. Most leading firms in these dynamically competitive industries have considerable short-run market power, for instance, but ignoring their vulnerability to drastic innovation may yield misleading conclusions. Similarly, conventional tests for predation cannot discriminate between practices that increase or decrease consumer welfare in winner-take-all industries. Finally, innovation in dynamically competitive industries often involves enhancing feature sets; there is no sound economic basis for treating such enhancements as per se illegal ties.

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This chapter was published in:

  • 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, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10784.

    Handle: RePEc:nbr:nberch:10784

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