Giulio Federico, Fiona Scott Morton and Carl Shapiro ‘Antitrust and Innovation: Welcoming and Protecting Disruption’ in Innovation Policy and the Economy (eds. Josh Lerner and Scott Stern, NBER), Vol. 20, Chapter 4, 125

This paper, available here, focuses on the impact of competition policy on innovation. Disruptive firms drive a significant amount of innovation. By making its offer to customers attractive in a new way, a disruptive firm can destroy a great deal of incumbent profit while creating a large amount of consumer surplus. The resulting churn in products and market shares, as new products enter and old ones exit, and as newer business methods and business models supplant older ones, are typical of a healthy competitive process. If that competitive process is slowed or biased by mergers or by exclusionary conduct, innovation is lessened and consumers are harmed. Competition policy seeks to protect the competitive process by which disruptive firms challenge the status quo, despite the biggest firms being some of the most impressive innovators in many industries experiencing rapid technological change. Innovation is best promoted when market leaders are allowed to exploit their competitive advantages while also facing pressure to perform…

Ioannis Kokkoris and Tommaso Valletti ‘Innovation Considerations in Horizontal Merger Control’ (2020) Journal of Competition Law & Economics 16(2) 220

This article, available here, focuses on the assessment of mergers in markets where innovation plays an important role. Innovation considerations have always been on the radar of the European Commission (“Commission”) but came to the limelight with recent decisions in the agrochemical sector. A significant amount of literature has emerged in the last few years, mainly analysing the economics of innovation considerations in merger control. Section II reviews the economic literature on the impact of competition on innovation incentives, while section III describes the debate among economists concerning the effects of horizontal mergers on innovation. The paper begins with a description of the debate on the relationship between innovation and competition – the classical Arrow/Schumpeter/Aghion triad (with a pinch of Shapiro), which I will not rehash again. More importantly, the paper describes how the debate around mergers and innovation has become the subject of increasing attention among economists, particularly in the context of the consolidation of mobile telecommunications and the…