Innovation Market Theory and Practice: An Analysis and Proposal for Reform

Kent Bernard, May 20, 2011

Encouraging and/or preserving innovation in mergers and acquisitions have been critical factors in modern antitrust analysis. These aims have been justification for the breakup of proposed research programs targeting diseases as serious as HIV/AIDS and cancer. The rationale given is always to protect competition and enhance the benefits to consumers.

Lawyers and economists justify intervention in mergers based on predictions of what will or might happen many years down the road in scientific research programs. They base those predictions on various theories and assumptions of how companies behave. But an examination of the actual drivers in the research based pharmaceutical industry, such as the time factor of revenue destruction and the resulting continuing need for new products, along with a review of what happened in key cases after the agencies acted, reveals that those underlying assumptions may well have been unfounded.

This factual consideration of how business actually behaves has been missing from the analysis. This article looks at the leading approaches to “innovation markets.” It then reviews the key cases in which the theory has been applied, and looks to see what actually happened after the case files were closed. In other words, did the intervention do any good, and/or did the lack of intervention do any harm?

The results of that inquiry strongly suggest that not only was the intervention not beneficial, it m

ACCESS TO THIS ARTICLE IS RESTRICTED TO SUBSCRIBERS

Please sign in or join us
to access premium content!