Vincenzo Denicolò and Michele Polo ‘The innovation theory of harm: An appraisal’ IEFE Working Papers 103

The relationship between competition and innovation has been explored by a large amount of literature, both theoretical and empirical. Despite this, general results remain elusive. In the light of this, antitrust authorities have generally refrained from taking extreme stances and followed a cautious approach. Intervention has been limited mainly to cases in which the merging firms’ innovative products are close to the commercialisation stage, where  innovation outcomes have been regarded as sufficiently predictable as to be amenable to standard analysis. But policy seems to be changing. The European Commission has gradually shifted the focus of its dynamic merger analysis from product pipelines to “innovation markets or spaces”. This article, available here, argues that the theoretical foundations of innovation theories of harm are too fragile to provide the bases for radical policy changes. Antitrust authorities and the courts should continue to consider the impact of horizontal mergers on innovation by bearing in mind that effects can go either way. Section 2…

Bruno Jullien and Yassine Lefouili ‘Horizontal Mergers and Innovation’ (2018) Journal of Competition Law & Economics 14(3) 364

This is another example of an early paper criticising the assumptions of those arguing for more stringent enforcement against mergers that may affect innovation – this time focusing on the potential for efficiencies brought about by such mergers. While not new, the debate on the effect of mergers on innovation has been particularly lively in Europe since the European Commission’s broadened its innovation theory of harm, starting with Dow/DuPont. The reasons behind this debate lie in the opposite effects that mergers can have on firms’ incentives to invest in R&D. This paper, available here, argues that merger control should be a priori neutral as to the innovation effects of horizontal mergers, since the overall effect of a merger on innovation can be either positive or negative depending on the circumstances. The paper further identifies a number of key factors which influence the impact of mergers on innovation. In particular, it suggests that a positive relationship between mergers and innovation is…

Jorge Padilla on ‘Revisiting the Horizontal Mergers and Innovation Policy Debate’ (2019) Journal of European Competition Law & Practice 10(6) 370

The Dow/DuPont merger launched an economic debate about the effects of horizontal mergers on innovation. Underpinning these debates are a number of points of agreement, beginning with consensus over the debate on the relationship between competition and innovation not being directly transferable to the effect of horizontal mergers. There are also a number of shared conclusions regarding merging firms’ ability and incentive to innovate when those firms compete in developing new products (product innovation) or in reducing their costs (process innovation). Such mergers may give rise to various efficiencies and increase the merging parties’ ability to innovate, but they can also influence the parties’ incentives to engage in R&D and implement their innovations. Ultimately, whether a merger leads to more innovation will depend on the nature and relative magnitude of the positive and negative externalities that the investments made by one party generate on the other. Where there seems to be no agreement, however, is on the implications of the…

Giulio Federico ‘Horizontal Mergers, Innovation and the Competitive Process’ (2017) Journal of European Competition Law & Practice 8(10)

Recent merger decisions have revived the debate on the role of innovation in merger control. The theory of harm put forward by competition authorities in these recent merger cases posits that a merger between rival innovators may lessen competition not only because of a reduction in (static) competition on current products, but also because of a lessening of (dynamic) competition on future products. According to this theory of harm, the loss of future competition may, at least in part, stem from a reduction in innovation. This article, available here, reviews the debate on the relationship between horizontal mergers and innovation up to this point (i.e. 2017). I think it provides a good overview of the various arguments invoked to subject mergers affecting innovation to more stringent scrutiny during a first stage of the debate. Section II offers a succinct historical account of economic thinking on the relationship between competition and innovation. Innovation theories of harm in merger control are premised…

Justus Haucap, Alexander Rasch and Joel Stiebale on ‘How mergers affect innovation: Theory and evidence’ (2019) International Journal of Industrial Organization 63 283

This article, available here, argues that a complete analysis of potential efficiencies from mergers should not only analyse how the merged entity’s prices, quantities and innovation incentives change (i.e., the direct effects of a merger), but also how these change for rival firms (indirect effects). While competition authorities sometimes analyse how mergers directly affect the merged firm’s innovation incentives, especially in high-tech industries, impacts on rivals’ innovation incentives have been rarely mentioned in merger guidelines or competition cases. This is unfortunate, since the effects of mergers on innovation in the relevant market depend on the reactions of non-merging competitors. While there is a growing literature on the effects of mergers on the innovation of the merging firms, evidence on the effects of mergers on outsiders’ innovation incentives is scarce. Thus, this paper studies how horizontal mergers affect the innovation efforts of both the merged entity and its non-merging competitors. Using data on horizontal mergers among pharmaceutical firms in Europe, it…

Simmon Vande Walle ‘Private enforcement of antitrust law in Belgium and the Netherlands – is there a race to attract antitrust damages actions?’ (2018) in Pier L. Parcu, Giorgio Monti and Marco Botta (eds.) Private Enforcement of EU Competition Law (Elgar, 2018) 118

Since the Belgian and Dutch legal systems are relatively similar, one would expect similar levels of antitrust litigation. However, this is not the case, particularly as regards follow-on claims. This article, available here, tries to find explanations for this divergence. It argues that the boom in follow-on damages actions in the Netherlands can be explained by the receptive attitude of Dutch judges and lawyers to follow-on damages actions, in line with their receptive approach to complex litigation. Belgian courts, by contrast, have been less receptive to follow-on actions, probably because Belgian judges have a higher caseload than Dutch judges do. This represents something of a paradox: the Belgian courts are more accessible and attract more regular, run-of-the mill litigation but, precisely because of this, they are less receptive to new types of litigation such as follow-on damages actions, regardless of the benefits that these actions may bring to the economy. Section 2 presents data on private antitrust enforcement in Belgium and the…

Felipe Irarrázabal ‘Competition and the plague’ (‘La libre competencia y la peste)

This piece is available here, but only in Spanish. The summary below reflects my own translation of the piece. Emergencies – such as wars and natural disasters – undermine the assumptions underpinning competition law and policy. Competition enforcement against cartels builds on the premise that fierce competition is highly beneficial for society, whereas firm cooperation will only create benefits in much more restricted situations. Competition enforcement also relies on legal procedures, which are by nature slow and lend themselves to sophisticated disputes. Covid-19 has forced authorities to enact exceptional regimes and pressured them to take urgent and even drastic measures. The coming economic recession will likely require similar measures. The main competition agencies in the world have started to react to this negative scenario. Several of them have declared that they will be alert to any possible violation of competition law. Others have specified that they will not accept excessive prices as a result of the crisis (although this legal…

Frederic Jenny ‘Economic Resilience, Globalization and Market Governance: Facing the Covid-19 Test’

Globalisation contributed to the rapid spread of COVID to all corners of the globe. The economic cost of fighting the virus froze a number of economies and disrupted global value chains, and is likely to be followed by several years of an economic depression that will dwarf the cost of the 2008 financial and economic crisis. The dramatic events of the first quarter of 2020 challenge some of the implicit assumptions underlying the design of our economic systems, and should make us think about some of the dilemmas and trade-offs that this crisis has foisted upon us. This piece, available as a working paper here,  is not mainly about competition – instead, it is a piece that thinks widely about the implications of this pandemic for the economic architecture underpinning globalisation, which also touches on competition. This is because, in the grand scheme of things, competition law and policy plays a relatively limited role when markets are not in equilibrium,…

OECD work on Crisis Cartels (2009)

The OECD background paper on this topic was written by Professor Simon J. Evenett in 2011, and can be found here. The purpose of this paper is to consider whether changes in policies towards cartel formation are merited during economic crises and associated recoveries. The paper is structured as follows: Sections two defines crisis cartels. The term crisis cartel is used to refer to a cartel that was formed during a severe sectoral, national, or global economic downturn. Such cartels can occur without state permission or legal sanction, which may trigger enforcement; or they may be permitted, even fostered, by a government, which may trigger advocacy. The impact of a crisis on the incentive of firms to cartelise will depend on the nature of the crisis, be it sectoral, national, or international. In thinking through the impact of each type of crisis on the behaviour of cartel members, one must identify the ways in which the crisis affects the business…