Antitrust in Innovative Industries

Ilya Segal, Michael Whinston

NBER Working Paper No. 11525
Issued in August 2005
NBER Program(s):   IO

We study the effects of antitrust policy in industries with continual innovation. A more protective antitrust policy 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 show that in some cases, holding the innovation rate fixed, as suggested by our comparative statics results, the tension does not arise and a more protective policy necessarily raises the rate of innovation.

(530 K)

Published: Whinston, Michael and Ilya Segal. "Antitrust in Innovative Industries." American Economic Review 97 (December 2007): 1703-30.

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