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Holding Innovation to an Antitrust Standard

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  • Gilbert, Richard

Abstract

Several antitrust cases have involved allegations of anticompetitive innovation or product design and some plaintiffs and antitrust scholars have argued that investment in research and development that excludes competition can have predatory effects similar to predatory pricing. This article analyzes several tests for predatory innovation, including the rule of reason based on total and consumer welfare and profit sacrifice tests. All of these tests are likely to produce false positives that chill incentives for beneficial investments in research and development. Most courts that have considered allegations of anticompetitive innovation, including the appellate court in U.S. v. Microsoft, have concluded that innovation is not anticompetitive if it has plausible efficiencies. This is close to a test of whether innovation is a sham. While a sham test may fail to identify innovations that harm competition, that risk is acceptable given the high cost of penalizing beneficial innovation. Similar trade-offs apply to the analysis of innovation by prescription drug manufacturers that may delay competition from generic drugs.

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Bibliographic Info

Paper provided by Regulation2point0 in its series Working paper with number 445.

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Date of creation: Mar 2007
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Handle: RePEc:reg:wpaper:445

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Web page: http://regulation2point0.org/

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