Competition, Innovation and Maintaining Diversity Through Competition Law

Posted by D. Daniel Sokol

Wolfgang Kerber, Philipps University Marburg - Department of Business Administration and Economics explains Competition, Innovation and Maintaining Diversity Through Competition Law.

ABSTRACT: The analysis of the advantages of competition as a process of parallel experimentation is a neglected dimension of competition. Innovation competition as a trial and error-process can be analyzed as an evolutionary process of variation and selection of new problem solutions, which allows to apply arguments and models of evolutionary innovation economics. Both through the analysis of the general benefits of diversity as well as from the analysis of the advantages of parallel research, it can be shown that a larger number and diversity of independently experimenting competitors can have a positive effect on innovation. Since there might be also advantages of a larger firm size, a trade off might occur leading to the notion of an optimal number of parallel experimenting firms. From this perspective, mergers and R&D agreements, which might reduce the number and diversity of parallel experiments, might have a negative impact on the effectiveness of competition as a knowledgegenerating process of parallel experimentation. Therefore the question arises whether competition law should also protect this dimension of competition. The Innovation Market Analysis in US antitrust policy already developed interesting criteria and policy conclusions for maintaining competition between parallel research projects and protecting diversity - but without an appropriate theoretical reasoning about the benefits of protecting parallel research.