Journal Article

INNOVATION AND THE LIMITS OF ANTITRUST

Geoffrey A. Manne and Joshua D. Wright

in Journal of Competition Law & Economics

Volume 6, issue 1, pages 153-202
Published in print March 2010 | ISSN: 1744-6414
Published online March 2010 | e-ISSN: 1744-6422 | DOI: https://dx.doi.org/10.1093/joclec/nhp032
INNOVATION AND THE LIMITS OF ANTITRUST

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  • Law and Economics
  • Antitrust Issues and Policies
  • Technological Change; Research and Development
  • Economic Methodology
  • Market Structure, Firm Strategy, and Market Performance

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Frank Easterbrook's seminal analysis of error-cost minimization in The Limits of Antitrust has special relevance to antitrust intervention in markets where innovation is a critical dimension of competition. Both product and business innovations involve novel practices. Historically, the economics profession has tended initially to rely upon monopoly explanations for such practices. Courts have reacted with similar hostility. But almost always there has followed a more nuanced economic understanding of the business practice that recognized its procompetitive virtues. Antitrust standards have adjusted occasionally to reflect that new economic learning. This sequence has produced a fundamental link between innovation and antitrust error that transcends the uncontroversial point that the probability of false positives and their social costs are both higher in the case of innovation and innovative business practices. We discuss some principles for applying Easterbrook's error-cost framework to innovation. We then discuss the historical relationship between antitrust error and innovation. We conclude by challenging the conventional wisdom that the error-cost approach implies that the rule of reason, rather than per se rules, should apply to most forms of business conduct. We instead identify simple filters to harness existing economic knowledge to design simple rules that minimize error costs. We make five such proposals.

Keywords: B40; B41; K00; K21; L10; L12; L40; L41; L42; O38

Journal Article.  22548 words.  Illustrated.

Subjects: Law and Economics ; Antitrust Issues and Policies ; Technological Change; Research and Development ; Economic Methodology ; Market Structure, Firm Strategy, and Market Performance

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