Promoting Innovation

20 Pages Posted: 13 Aug 2014 Last revised: 9 Oct 2014

See all articles by Spencer Weber Waller

Spencer Weber Waller

Loyola University of Chicago, School of Law - Institute for Consumer Antitrust Studies

Matthew Sag

Loyola University Chicago School of Law

Date Written: August 12, 2014

Abstract

The economist Joseph Schumpeter recognized two essential facts of modern capitalism: the sudden displacement of the old by the new, a process he eloquently termed “creative destruction”; and the significance of innovation over incremental improvements in allocative efficiency to long-run economic growth. The twin Schumpeterian insights are now well accepted. How these insights should be incorporated into laws regulating the marketplace, such as antitrust and intellectual property, is far less clear.

Antitrust minimalists and skeptics tend to equate Schumpeter with laissez faire. After all, if even the most entrenched market behemoths are vulnerable to seismic shifts in technology, are not all supposed monopolies merely fleeting? We disagree. This view misreads Schumpeter and misunderstands markets and business strategy. Modern businesses are well aware of the threat of disruptive outsiders and, left unchecked, will do their utmost to prevent future waves of creative destruction from threatening the status quo. We propose thinking of creative destructive and competition policy as a two-stage process rather than a single event where the victor enjoys the spoils of innovation indefinitely without legal constraints. Instead, competition law as we currently understand it would remain in place while being somewhat more forgiving as to the acquisition of market power, yet still vigilant in policing the maintenance of such power.

We focus on historical, current, and hypothetical examples from US and EU competition and intellectual property law to show how contemporary law has already incorporated many of these insights and the law can maximize consumer welfare by doing so more thoroughly. Under such a two-step approach, some areas of antitrust and IP law would expand, some would contract, but all areas of the law would more clearly promote innovation and help create real Schumpeterian antitrust.

Keywords: Antitrust, Competition, Creative destruction, Joseph Schumpeter, Intellectual property

JEL Classification: K00, K21, K41, K42, L1, L4, P1

Suggested Citation

Waller, Spencer Weber and Sag, Matthew, Promoting Innovation (August 12, 2014). Iowa Law Review, Vol. 100, 2015. Available at SSRN: https://ssrn.com/abstract=2479569 or http://dx.doi.org/10.2139/ssrn.2479569

Spencer Weber Waller (Contact Author)

Loyola University of Chicago, School of Law - Institute for Consumer Antitrust Studies ( email )

25 E. Pearson
Chicago, IL 60611
United States
312-915-7137 (Phone)
312-915-7201 (Fax)

Matthew Sag

Loyola University Chicago School of Law ( email )

25 E. Pearson
Chicago, IL 60611
United States

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