Antitrust and Innovation: Welcoming and Protecting Disruption

52 Pages Posted: 12 Jun 2019

See all articles by Giulio Federico

Giulio Federico

Chief Economist Team, DG Competition, European Commission

Fiona M. Scott Morton

Yale School of Management; National Bureau of Economic Research (NBER)

Carl Shapiro

University of California, Berkeley - Haas School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 24, 2019

Abstract

The goal of antitrust policy is to protect and promote a vigorous competitive process. Effective rivalry spurs firms to introduce new and innovative products, as they seek to capture profitable sales from their competitors and to protect their existing sales from future challengers. In this fundamental way, competition promotes innovation. We apply this basic insight to the antitrust treatment of horizontal mergers and of exclusionary conduct by dominant firms.

A merger between rivals internalizes business-stealing effects arising from their parallel innovation efforts and thus tends to depress innovation incentives. Merger-specific synergies, such as the internalization of involuntary spillovers or an increase in the productivity of R&D, may offset the adverse effect of a merger on innovation. We describe the possible effects of a merger on innovation by developing a taxonomy of cases, with reference to recent U.S. and E.U. examples.

A dominant firm may engage in exclusionary conduct to eliminate the threat from disruptive firms. This suppresses innovation by foreclosing disruptive rivals and by reducing the pressure to innovative on the incumbent. We apply this broad principle to possible exclusionary strategies by dominant firms.

Keywords: Antitrust, competition policy, innovation, mergers, exclusionary conduct

Suggested Citation

Federico, Giulio and Scott Morton, Fiona M. and Shapiro, Carl, Antitrust and Innovation: Welcoming and Protecting Disruption (May 24, 2019). Available at SSRN: https://ssrn.com/abstract=3393911 or http://dx.doi.org/10.2139/ssrn.3393911

Giulio Federico

Chief Economist Team, DG Competition, European Commission ( email )

Fiona M. Scott Morton

Yale School of Management ( email )

New Haven, CT 06520
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Carl Shapiro (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-5905 (Phone)

HOME PAGE: http://faculty.haas.berkeley.edu

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