Driving Innovation: A Case for Targeted Competition Policy in Dynamic Markets

Abstract:     
Innovation consists of new ideas, methods and products and together they drive economic growth and deliver benefits to society as a whole. Competitive intensity and rewards both drive innovation, but the importance of providing high rewards, which are secured by intellectual property rights (IPRs), is regularly overstated. Indeed, greater competition and the role of competition law is often claimed to have a ‘chilling effect’ on innovation in spite of facilitating greater dynamic efficiency. This article argues that competition and rewards, and indeed competition law and IPRs, are not mutually exclusive and suggests an approach to maximise innovation in dynamic markets whereby competition law applies to conduct beyond the natural scope of IPR protection. This article tests the suggested approach by applying it to a number of controversial practices in the pharmaceutical sector, as well as standard setting in high technology markets, which give rise to competition concerns. This article concludes by advocating proactive, justifiable competition intervention when conduct exceeds the natural scope of IPRs, and thereby presents a case for targeted competition policy in dynamic markets.

Number of Pages in PDF File: 24

Keywords: antitrust, innovation, rewards, pharmaceutical industry, competitive intensity, dynamic efficiency, patent clusters, patent settlements, IPRs

JEL Classification: K21, L40

Accepted Paper Series