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American Economic Review: Vol. 97 No. 5 (December 2007)

AER Volume. 97, Issue 5 | Previous ArticleNext Article

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Antitrust in Innovative Industries

Article Citation

Segal, Ilya, and Michael D. Whinston. 2007. "Antitrust in Innovative Industries." American Economic Review, 97(5): 1703-1730.

DOI: 10.1257/aer.97.5.1703

Abstract

We study the effects of antitrust policy in industries with continual innovation. Antitrust policies that restrict incumbent behavior toward new entrants may have conflicting effects on innovation incentives, raising the profits of new entrants, but lowering those of continuing incumbents. We show that the direction of the net effect can be determined by analyzing shifts in innovation benefit and supply, holding the innovation rate fixed. We apply this framework to analyze several specific antitrust policies. We also show that, in some cases, the tension does not arise, and policies that protect entrants necessarily raise the rate of innovation. (JEL K21, L13, L14, L40, O30)

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Authors

Segal, Ilya (Stanford University)
Whinston, Michael D. (Northwestern University)

JEL Classifications

K21: Antitrust Law
L13: Oligopoly and Other Imperfect Markets
L14: Transactional Relationships; Contracts and Reputation; Networks
L40: Antitrust Issues and Policies: General
O30: Technological Change; Research and Development: General