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Antitrust laws must promote the true driver of growth: innovation

 |  October 9, 2018

Post by The Hill

Antitrust laws must promote the true driver of growth: innovation

By David J. Teece

The goal underpinning US antitrust law is to promote competition that leads to lower prices and enhanced consumer welfare.

For years, antitrust agencies have approached this goal by focusing on short-term, static competition, which emphasizes achieving low prices in the here and now.

This narrow focus, however, has resulted in unnecessary conflict between the static competitive analysis deployed by antitrust regulators and the dynamic issues raised by intellectual property.

Fortunately, over the last few decades, a growing recognition has emerged among economists that antitrust laws must be recalibrated to preserve the incentive to innovate and promote the U.S. innovation economy.

These economists are calling for an antitrust framework that prioritizes dynamic over static competition — placing less weight on market concentration in the assessment of market power and more weight on assessing technological opportunity, innovation-driven competition and appropriate enterprise-level capabilities.

At the heart of this movement is the foundational principle, dating back to Joseph Schumpeter and Nobel Laureate economist Robert Solow, that innovation is the main driver of economic growth.

Indeed, given the strong economic evidence that innovation drives productivity, sharpens competition and creates new products, a serious consumer-oriented antitrust policy, with an intermediate-to-long-term orientation, necessarily must focus primarily on supporting and advancing innovation.

However, although antitrust agencies routinely claim to favor both innovation and competition, this has not always been the case.

For instance, during the previous administration, some agency heads unnecessarily generated tension between static competitive analysis — with its undue emphasis on achieving low prices in the short term — and the dynamic issues implicated by intellectual property and associated royalty payments.

Royalties, in the short run, raise prices of licensed goods relative to the prices that would prevail absent payments.

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