Innovation and the Limits of Antitrust

Geoffrey A. Manne

International Center for Law & Economics

Joshua D. Wright

George Mason University School of Law

March 2010

Journal of Competition Law and Economics, Vol. 6, Issue 1, pp. 153-202, 2010

Frank Easterbrook's seminal analysis of error-cost minimization in The Limits of Antitrust has special relevance to antitrust intervention in markets where innovation is a critical dimension of competition. Both product and business innovations involve novel practices. Historically, the economics profession has tended initially to rely upon monopoly explanations for such practices. Courts have reacted with similar hostility. But almost always there has followed a more nuanced economic understanding of the business practice that recognized its procompetitive virtues. Antitrust standards have adjusted occasionally to reflect that new economic learning. This sequence has produced a fundamental link between innovation and antitrust error that transcends the uncontroversial point that the probability of false positives and their social costs are both higher in the case of innovation and innovative business practices. We discuss some principles for applying Easterbrook's error-cost framework to innovation. We then discuss the historical relationship between antitrust error and innovation. We conclude by challenging the conventional wisdom that the error-cost approach implies that the rule of reason, rather than per se rules, should apply to most forms of business conduct. We instead identify simple filters to harness existing economic knowledge to design simple rules that minimize error costs. We make five such proposals.

Keywords: B40, B41, K00, K21, L10, L12, L40, L41, L42, O38

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Date posted: March 29, 2010  

Suggested Citation

Manne, Geoffrey A. and Wright, Joshua D., Innovation and the Limits of Antitrust (March 2010). Journal of Competition Law and Economics, Vol. 6, Issue 1, pp. 153-202, 2010. Available at SSRN: http://ssrn.com/abstract=1578762 or http://dx.doi.org/nhp032

Contact Information

Geoffrey A. Manne (Contact Author)
International Center for Law & Economics ( email )
3333 NE Sandy Blvd
Suite 207
Portland, OR Oregon 97232
United States
503-770-0076 (Phone)
HOME PAGE: http://www.laweconcenter.org
Joshua D. Wright
George Mason University School of Law ( email )
3301 Fairfax Drive
Arlington, VA 22201
United States

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