Innovation is the most important driver of economic dynamism and is central to improving people’s lives over the long run. But for too long, it’s been misunderstood. Over the past 40 years, in line with a hands-off, market-first approach to competition policy, antitrust law practitioners have understood innovation as primarily a product of individual effort in response to financial incentives. Accordingly, many US courts have adopted and simplified this incentive-oriented view of innovation to argue that monopoly prices and profits to dominant firms are necessary to incentivize innovation and economic growth, giving more legal leeway to mergers and the active acquisition of monopoly power. As a result, antitrust law has largely neglected to consider what social and technological relationships are necessary to actually make innovation happen. It is time for new antitrust laws that better reflect the innovation process and take a more holistic approach to innovation.
Innovating Antitrust Law: How Innovation Really Happens and How Antitrust Law Should Adapt, a new Roosevelt Institute report, argues that to ensure innovation continues to drive the US economy forward, we must regear antitrust legal interpretation and policy beyond the simplistic and self-serving incentive-oriented approach toward a more comprehensive “capabilities”-based understanding of how innovation occurs. As author Ketan Ahuja (the University of Oxford, Center for Competition Law and Policy) finds, this means rethinking specific antitrust policies to go beyond merely prescribing financial incentives to individual firms and instead focus on developing the public and private structures, networks, and relationships that unlock innovation. And it means more careful scrutiny of vertical and conglomerate mergers and a prohibition on employee noncompete agreements to allow for the free flow of workers’ tacit knowledge and capabilities that are needed for innovation.
To make the argument for new antitrust laws, Ahuja lays out his paper as follows:
- Section 1 addresses how economic paradigms shape antitrust interpretation;
- Section 2 contrasts incentive-based and capabilities-based views on innovation;
- Section 3 demonstrates that current antitrust law primarily relies on an incentive-oriented understanding of innovation and ignores a capabilities-oriented understanding of innovation;
- Section 4 addresses how to integrate a capabilities-oriented understanding of innovation into antitrust; and
- Section 5 covers examples and policy implications.
Insight on the paper
“The US has always prided itself on being a leading innovator, but its current antitrust policies are preventing this innovation from happening. To support innovation better—benefitting innovators, workers, consumers, and the general public and leading to stronger, shared economic growth—policymakers must incorporate diverse paradigms on innovation from other schools of economic thought into antitrust,” said Ahuja.
“We at the Roosevelt Institute have long argued that lax antitrust enforcement is contributing to ballooning corporate concentration—exacerbating inequalities, increasing the cost of living, and stunting needed innovations. But the tides are turning. Today’s paper offers crucial insights into how innovation actually happens—away from the myth of a single heroic inventor driving economic success (and thus deserving all the economic rewards) toward a more nuanced and historically accurate understanding of innovation emerging from multiplayer, iterative, and cross-boundary interactions across the public and private domains. Adopting this more holistic view of innovation would mean that antitrust law can become more rigorous in curbing excess market power—not to the detriment but in the interest of an innovative 21st-century economy, ” said Niko Lusiani, Roosevelt Institute’s director, corporate power.
You can learn more about how we need to bring new understandings of innovation into antitrust conversations in this blog post from Ahuja.