Innovation, Antitrust Enforcement, and the Inverted-U

Ufuk Akcigit and John Van Reenen (eds). The Economics of Creative Destruction. Harvard University Press, Forthcoming.

26 Pages Posted: 16 Feb 2022 Last revised: 6 Jun 2022

See all articles by Richard Gilbert

Richard Gilbert

University of California, Berkeley

Christian Riis

Norwegian Business School

Erlend Riis

University of Cambridge

Date Written: June 6, 2022

Abstract

The effects of monopoly power or mergers on incentives to innovate are important issues for antitrust enforcement, but they receive relatively little attention in litigated cases compared to the analysis of predicted effects on prices. This paper reviews what is known about the relationship between market structure and innovation and its implications for antitrust enforcement. A focus is on the significance of the inverted-U result in dynamic markets identified in research by Philippe Aghion, Peter Howitt, and their co-authors. We note that these results do not apply directly to mergers. A merger creates a negative externality by eliminating the incentive of each merging party to invest in an innovation that takes sales from the other party. However, mergers also can create a positive externality for innovations that expand the merged firm’s demand or accelerate discovery. We conclude that the net effects for innovation from mergers and from the acquisition or maintenance of monopoly power depend importantly on the extent to which mergers or monopoly power increase existing profits that are jeopardized by innovation.

Keywords: Monopoly, Mergers, Antitrust, Innovation

JEL Classification: L12, L40, L41

Suggested Citation

Gilbert, Richard and Riis, Christian and Riis, Erlend, Innovation, Antitrust Enforcement, and the Inverted-U (June 6, 2022). Ufuk Akcigit and John Van Reenen (eds). The Economics of Creative Destruction. Harvard University Press, Forthcoming., Available at SSRN: https://ssrn.com/abstract=4034800 or http://dx.doi.org/10.2139/ssrn.4034800

Richard Gilbert (Contact Author)

University of California, Berkeley ( email )

Department of Economics
530 Evans Hall #3880
Berkeley, CA 94720
United States
510 339 6493 (Phone)

Christian Riis

Norwegian Business School ( email )

Nydalsveien 37
N-0442 Oslo
Norway
46410789 (Phone)

Erlend Riis

University of Cambridge

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

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