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Antitrust in Innovative Industries

  • Ilya Segal
  • Michael D. Whinston

We study the effects of antitrust policy in industries with continual innovation. Antitrust policies that restrict incumbent behavior toward new entrants may have conflicting effects on innovation incentives, raising the profits of new entrants, but lowering those of continuing incumbents. We show that the direction of the net effect can be determined by analyzing shifts in innovation benefit and supply, holding the innovation rate fixed. We apply this framework to analyze several specific antitrust policies. We also show that, in some cases, the tension does not arise, and policies that protect entrants necessarily raise the rate of innovation. (JEL K21, L13, L14, L40, O30)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 5 (December)
Pages: 1703-1730

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Handle: RePEc:aea:aecrev:v:97:y:2007:i:5:p:1703-1730
Note: DOI: 10.1257/aer.97.5.1703
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  1. Gerard Llobet & Hugo Hopenhayn & Matthew Mitchell, 2003. "Rewarding Sequential Innovators: Prizes, Patents and Buyouts," Levine's Working Paper Archive 618897000000000682, David K. Levine.
  2. David S. Evans & Richard Schmalensee, 2001. "Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries," NBER Working Papers 8268, National Bureau of Economic Research, Inc.
  3. Richard J. Gilbert & Michael L. Katz, 2001. "An Economist's Guide to U.S. v. Microsoft," Industrial Organization 0106001, EconWPA.
  4. Glenn C. Loury, 1976. "Market Structure and Innovation," Discussion Papers 256, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  6. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-80, January.
  7. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
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  12. 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, December.
  13. Robert M Hunt, 2003. "Patentability, Industry Structure and Innovation," Levine's Working Paper Archive 618897000000000689, David K. Levine.
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