Innovating Antitrust Law: How Innovation Really Happens and How Antitrust Law Should Adapt

Innovation is the most important driver of economic growth and is central to improving people’s lives over the long run. Promoting innovation is, increasingly, a central feature of antitrust law, with antitrust practitioners in recent decades relying on economic analyses of innovation to interpret and enforce the law.

But antitrust practitioners’ current paradigms on innovation are incomplete because they draw primarily on neoclassical approaches to economics, which analyze economic behavior as resulting from rational, utility-maximizing agents acting according to their own incentives. As a result, practitioners see innovation as a question primarily of the incentives of market agents. This mode of thinking came from 1970s market fundamentalist economists and commentators such as Robert Bork. But the ultimate dominance of neoclassical paradigms in antitrust occurred because the entire ideological spectrum of the antitrust community internalized neoclassical paradigms as it sought to improve antitrust law by incorporating economic research, which came largely from economics faculties employing a neoclassical methodology.

Incorporating diverse paradigms on innovation from other schools of economic thought into antitrust would lead competition policy to support innovation better, benefitting innovators, consumers, and workers—and leading to stronger, shared economic growth. In particular, competition policy must account for how innovation actually takes place. Research from across fields demonstrates that economic incentives alone don’t just pull innovations into existence: Other factors and conditions must be present. A crucial theme in innovation research is that innovation is an emergent phenomenon resulting from mixing different capabilities (such as skillsets, technologies, or product components). Often, innovators have both pecuniary and nonpecuniary motivations, and the public sector plays a crucial role in shaping the rate and direction of innovation. It is time to bring these perspectives on innovation into competition policy.