Wednesday, September 12, 2012
ANTICOMPETITIVE STUMBLING STONES ON THE WAY TO A CLEANER WORLD: PROTECTING COMPETITION IN INNOVATION WITHOUT A MARKET
Posted by D. Daniel Sokol
Josef Drexel (Max Planck) describes ANTICOMPETITIVE STUMBLING STONES ON THE WAY TO A CLEANER WORLD: PROTECTING COMPETITION IN INNOVATION WITHOUT A MARKET.
ABSTRACT: Firms do not only compete by price. Another parameter of competition is innovation. This raises the question of how competition law should assess potential restraints of competition in innovation. Modern competition policy advocates an effects-based approach that analyzes cases in light of the economic effects on relevant markets. Firms also compete in existing markets when they try to improve their products sold in these markets or optimize processes for manufacturing those products. However, as it was first discussed in merger control law, an analysis limited to the effects on existing markets may fail to assess cases appropriately when firms are not yet competitors but dispose of innovation capacity for future markets. Whereas a merger among such firms will not harm existing price competition, it may well have a negative effect on the new firm's incentives to innovate. For addressing this phenomenon, the U.S. agencies in particular started to analyze cases also in the light of so-called “innovation markets” in the 1990s. Yet this new approach was also criticized. Indeed, the idea of an innovation market remained at best a metaphor, since there are no transactions between suppliers and customers of innovation before tradable technologies and products emerge from R&D efforts. Therefore, both the most recent U.S. Horizontal Merger Guidelines and the EU Guidelines on Horizontal Cooperation Agreements have now given up the idea of an “innovation market” concept in favor of a U.S. “innovation competition” and EU “competition in innovation” concept. This change confirms that competition in innovation takes place outside and before the emergence of markets. If this is so, modern competition law, which strongly focuses on market analysis, may face a major problem in addressing restraints of competition in innovation appropriately. The following article analyzes this problem against the background of EU competition law for the different fields of enforcement—mergers, agreements, and unilateral conduct—by also taking into account most recent cases. The article highlights that an analysis based on the effects on existing markets can only work as a rough proxy in such cases. Most importantly, in the field of unilateral conduct, the requirement of market dominance at the time of the abuse under Article 102 of the TFEU considerably limits the capability of enforcers to act against restraints of competition in innovation.