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Beyond Schumpeter vs. Arrow: How Antitrust Fosters Innovation

28 Pages Posted: 12 Feb 2007 Last revised: 29 Oct 2014

Jonathan B. Baker

American University - Washington College of Law

Date Written: June 1, 2007

Abstract

The relationship between competition and innovation is the subject of a familiar controversy in economics, between the Schumpeterian view that monopolies favor innovation and the opposite view, often associated with Kenneth Arrow, that competition favors innovation. Taking their cue from this debate, some commentators reserve judgment as to whether antitrust enforcement is good for innovation. Such misgivings are unnecessary. The modern economic learning about the connection between competition and innovation helps clarify the types of firm conduct and industry settings where antitrust interventions are most likely to foster innovation. Measured against this standard, contemporary competition policy holds up well. Today's antitrust institutions support innovation by targeting types of industries and practices where antitrust enforcement would enhance research and development incentives the most. It is time to move beyond the on-the-one-hand Schumpeter, on-the-other-hand Arrow debate and embrace antitrust as essential for fostering innovation.

Keywords: antitrust, innovation

JEL Classification: K22, L40

Suggested Citation

Baker, Jonathan B., Beyond Schumpeter vs. Arrow: How Antitrust Fosters Innovation (June 1, 2007). Antitrust Law Journal , Vol. 74, 2007. Available at SSRN: https://ssrn.com/abstract=962261 or http://dx.doi.org/10.2139/ssrn.962261

Jonathan B. Baker (Contact Author)

American University - Washington College of Law ( email )

4300 Nebraska Avenue, NW
Washington, DC 20016
United States
202-274-4315 (Phone)

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