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Competition and Innovation

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  • Gilbert, Richard J
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    Abstract

    The Department of Justice and the Federal Trade Commission have frequently raised innovation concerns as reasons to challenge mergers. This chapter surveys the economic theories of innovation incentives and considers how the theory may inform antitrust analysis for merger investigations and other conduct that involve innovation. Competition can promote innovation by reducing the value of failing to invest in research and development. However, with non-exclusive intellectual property rights, competition can reduce innovation incentives by lowering post-innovation profits. There is some empirical support for these economic theories. The chapter concludes that economics can inform antitrust analysis for mergers and other conduct that could affect innovation, although it is important that antitrust analysis carefully consider the key factors that drive innovation incentives.

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    Paper provided by Competition Policy Center, Institute for Business and Economic Research, UC Berkeley in its series Competition Policy Center, Working Paper Series with number qt9xh5p5p9.

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    Date of creation: 27 Jan 2007
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    Handle: RePEc:cdl:compol:qt9xh5p5p9

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    4. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
    5. Blundell, Richard & Griffith, Rachel & Van Reenen, John, 1995. "Dynamic Count Data Models of Technological Innovation," Economic Journal, Royal Economic Society, vol. 105(429), pages 333-44, March.
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    18. Glenn C. Loury, 1976. "Market Structure and Innovation," Discussion Papers 256, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    19. Gilbert, Richard J & Weinschel, Alan J, 2005. "Competition Policy for Intellectual Property: Balancing Competition and Reward," Competition Policy Center, Working Paper Series qt76q6c9jh, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    20. Scherer, F. M., 1982. "Inter-industry technology flows in the United States," Research Policy, Elsevier, vol. 11(4), pages 227-245, August.
    21. Dasgupta, Partha & Stiglitz, Joseph, 1980. "Industrial Structure and the Nature of Innovative Activity," Economic Journal, Royal Economic Society, vol. 90(358), pages 266-93, June.
    22. MacDonald, James M, 1994. "Does Import Competition Force Efficient Production?," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 721-27, November.
    23. Bester, H. & Petrakis, E., 1991. "The Incentives for Cost Reduction in a Differentiated Industry," Discussion Paper 1991-36, Tilburg University, Center for Economic Research.
    24. Adam B. Jaffe & Josh Lerner & Scott Stern, 2003. "Innovation Policy and the Economy, Volume 3," NBER Books, National Bureau of Economic Research, Inc, number jaff03-1.
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