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How Antitrust Enforcement Can Spur Innovation: Bell Labs and the 1956 Consent Decree

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  • Martin Watzinger
  • Thomas A. Fackler
  • Markus Nagler
  • Monika Schnitzer

Abstract

Is compulsory licensing an effective antitrust remedy to increase innovation? To answer this question, we analyze the 1956 consent decree that settled an antitrust lawsuit against Bell, a vertically integrated monopolist charged with foreclosing the telecommunications equipment market. Bell was forced to license all its existing patents royalty-free, including those not related to telecommunications. We identify the effect of the consent decree on follow-on innovations building on Bell patents by using exactly matched non-Bell patents as control group. We show that the consent decree led to a lasting increase in innovation but only in markets outside the telecommunications sector.

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  • Martin Watzinger & Thomas A. Fackler & Markus Nagler & Monika Schnitzer, 2020. "How Antitrust Enforcement Can Spur Innovation: Bell Labs and the 1956 Consent Decree," American Economic Journal: Economic Policy, American Economic Association, vol. 12(4), pages 328-359, November.
    • Handle: RePEc:aea:aejpol:v:12:y:2020:i:4:p:328-59
    DOI: 10.1257/pol.20190086
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    Cited by:

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    2. Naudé, Wim & Nagler, Paula, 2022. "The Ossified Economy: The Case of Germany, 1870-2020," IZA Discussion Papers 15607, Institute of Labor Economics (IZA).
    3. Michael Klein & Yibai Yang, 2024. "Blocking Patents, Rent Protection and Economic Growth"," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 52, pages 1-20, April.
    4. Cabral, Luis, 2018. "Standing on the Shoulders of Dwarfs: Dominant Firms and Innovation Incentives," CEPR Discussion Papers 13115, C.E.P.R. Discussion Papers.
    5. Po-Hsuan Hsu & Hsiao-Hui Lee & Tong Zhou, 2022. "Patent Thickets, Stock Returns, and Conditional CAPM," Management Science, INFORMS, vol. 68(11), pages 8343-8367, November.
    6. Robin Mamrak, 2023. "Antitrust and (Foreign) Innovation: Evidence from the Xerox Case," Rationality and Competition Discussion Paper Series 396, CRC TRR 190 Rationality and Competition.
    7. Rachel Griffith & John Van Reenen, 2021. "Product market competition, creative destruction and innovation," IFS Working Papers W21/43, Institute for Fiscal Studies.
    8. Reda Cherif & Fuad Hasanov & Philippe Aghion, 2023. "Fair and inclusive markets: Why dynamism matters," Global Policy, London School of Economics and Political Science, vol. 14(5), pages 686-701, November.
    9. Kovács, Olivér, 2020. "Gazellák az iparpolitika tükrében, I [Gazelles and industrial policy, Part 1]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 54-87.
    10. Fabian Gaessler & Dietmar Harhoff & Stefan Sorg & Georg von Graevenitz, 2024. "Patents, Freedom to Operate, and Follow-on Innovation: Evidence from Post-Grant Opposition," Rationality and Competition Discussion Paper Series 494, CRC TRR 190 Rationality and Competition.
    11. Markus Nagler & Monika Schnitzer & Martin Watzinger, 2022. "Fostering the Diffusion of General Purpose Technologies: Evidence from the Licensing of the Transistor Patents," Journal of Industrial Economics, Wiley Blackwell, vol. 70(4), pages 838-866, December.
    12. Poege, Felix, 2022. "Competition and Innovation: The Breakup of IG Farben," IZA Discussion Papers 15517, Institute of Labor Economics (IZA).
    13. Naudé, Wim & Nagler, Paula, 2017. "Technological Innovation and Inclusive Growth in Germany," IZA Discussion Papers 11194, Institute of Labor Economics (IZA).
    14. Valentiny, Pál, 2024. "Mennyire innovatívak a Big Tech vállalatok? [How innovative are Big Tech companies?]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 22-56.
    15. Babina, Tania & Barkai, Simcha & Jeffers, Jessica & Karger, Ezra & Volkova, Ekaterina, 2023. "Antitrust enforcement increases economic activity," Working Papers 332, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    16. Oliver Falck, 2019. "Brauchen wir eine aktive europäische Industriepolitik?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 72(10), pages 12-15, May.
    17. Gaessler, Fabian & Harhoff, Dietmar & Sorg, Stefan, 2019. "Bargaining Failure and Freedom to Operate: Re-evaluating the Effect of Patents on Cumulative Innovation," Rationality and Competition Discussion Paper Series 220, CRC TRR 190 Rationality and Competition.
    18. Tania Babina & Simcha Barkai & Jessica Jeffers & Ezra Karger & Ekaterina Volkova, 2023. "Antitrust Enforcement Increases Economic Activity," Working Papers 23-50, Center for Economic Studies, U.S. Census Bureau.
    19. Sruthi Thatchenkery & Riitta Katila, 2023. "Innovation and profitability following antitrust intervention against a dominant platform: The wild, wild west?," Strategic Management Journal, Wiley Blackwell, vol. 44(4), pages 943-976, April.
    20. Naudé, Wim & Nagler, Paula, 2021. "The Rise and Fall of German Innovation," IZA Discussion Papers 14154, Institute of Labor Economics (IZA).
    21. Watzinger, Martin & Schnitzer, Monika, 2022. "The Breakup of the Bell System and its Impact on US Innovation," Rationality and Competition Discussion Paper Series 341, CRC TRR 190 Rationality and Competition.

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    More about this item

    JEL classification:

    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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