Antitrust, Innovation, and Competitiveness.

• Author: Hemphill, Thomas A.

To what extent does U.S. antitrust policy adversely impact technological and organizational innovation by American firms and thereby affect U.S. corporations' abilities to compete in the world economy? To explore this question, professors Jorde and Teece enlisted an eminent group of industrial organization economists and antitrust legal scholars to specifically address (in eight articles) the issue of why "U.S. antitrust policy did not seem to recognize how seminal innovation was to competition and to the U.S. standard of living (Preface)."

In the introduction, Jorde and Teece point out a basic axiom: professional economists are in nearly unanimous agreement that economic welfare is the goal of antitrust policy. The problem, as the editors view it, is that when antitrust policy is implemented it focuses on static analysis, i.e., single-time periods, where there is almost no reference to innovation and its importance to competition and overall economic welfare. Jorde and Teece believe that it is dynamic innovation and its subsequent rapid commercialization that are the major factors propelling national productivity improvement and the general economic welfare. Thus, when the courts have a choice to make in antitrust cases, the conflict should be resolved in favor of future-looking innovation over traditional static consumer welfare.

In "Innovation, Cooperation, and Antitrust," editors Jorde and Teece focus their attention on horizontal agreements among firms who are potential competitors and argue for a different approach to horizontal restraints. According to Jorde and Teece, the traditional view of the innovation process is characterized as a linear process--R&D through manufacture through marketing. The modern view of innovation, a dynamic view, involves more interdependencies, tighter linkages, and increased feedback among and between the functional areas. For reasons of cost, competence, and capacity, most firms lack the capacity to conduct all these activities alone.

Since the dynamic innovation process requires an increasing number of interfirm linkages and alliances, firms are exposing themselves to public and private antitrust treble damage actions. There are presently no Department of Justice guidelines and precious little case law to guide managers. Jorde and Teece believe that the courts presently have only murky rule of reason standards to guide them. The editors offer their own criteria for rule of reason analysis which...