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Cumulative Innovation and Competition Policy

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Author Info

  • Alexander Raskovich

    (Economic Analysis Group, Antitrust Division, U.S. Department of Justice)

  • Nathan H. Miller
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    Abstract

    We model a “new economy” industry where innovation is sequential and monopoly is persistent but the incumbent turns over periodically. In this setting we analyze the effects of “extraction” (e.g., price discrimination that captures greater surplus) and “extension” (conduct that simply delays entry of the next incumbent) on steady-state equilibrium innovation, welfare and growth. We find that extraction invariably increases innovation and welfare growth rates, but extension causes harm under plausible conditions. This provides a rationale for the divergent treatment of single-firm conduct under U.S. law. Our analysis also suggests a rule-of-thumb, consistent with antitrust practice, that innovation proxies welfare.

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    File URL: http://www.justice.gov/atr/public/eag/262643a.htm
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    Bibliographic Info

    Paper provided by Department of Justice, Antitrust Division in its series EAG Discussions Papers with number 201005.

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    Length: 22 pages
    Date of creation: Sep 2010
    Date of revision:
    Handle: RePEc:doj:eagpap:201005

    Contact details of provider:
    Postal: Department of Justice Antitrust Division 450 Fifth Street NW Washington, DC 20530
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    Web page: http://www.justice.gov/atr/
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