Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, October 18, 2007

Beyond Schumpeter vs. Arrow: How Antitrust Fosters Innovation

Posted by D. Daniel Sokol

How to address innovation in antitrust remains a critically important topic and one for which we do not have definative answers.  Weighing in on the debate is American University Law Professor Jonathan Baker with his piece Beyond Schumpeter vs. Arrow: How Antitrust Fosters Innovation.

ABSTRACT: The relationship between competition and innovation is the subject of a familiar controversy in economics, between the Schumpeterian view that monopolies favor innovation and the opposite view, often associated with Kenneth Arrow, that competition favors innovation. Taking their cue from this debate, some commentators reserve judgment as to whether antitrust enforcement is good for innovation. Such misgivings are unnecessary. The modern economic learning about the connection between competition and innovation helps clarify the types of firm conduct and industry settings where antitrust interventions are most likely to foster innovation. Measured against this standard, contemporary competition policy holds up well. Today's antitrust institutions support innovation by targeting types of industries and practices where antitrust enforcement would enhance research and development incentives the most. It is time to move beyond the on-the-one-hand Schumpeter, on-the-other-hand Arrow debate and embrace antitrust as essential for fostering innovation.

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