The Dynamic Transformation of the Finnish Innovation System
New Horizons in the Economics of Innovation series
Edited by Gerd Schienstock
Chapter 13: Regulation and innovation: Competition law
Kalle Määttä 13.1 PRELIMINARY REMARKS Virtually all regulations that affect output, profitability and technological constraints also have implications for innovative activities. (See in general Metcalfe 1995.) On the other hand, the results of innovative activities have implications for regulatory policy, that is, new technological innovations often create challenges for the development of amendments to regulation. This is also the case with respect to competition law and policy. Competition law may be an obstacle for innovations as well as facilitate innovative activities. Sometimes new innovations, like those in the telecommunications sector, have created new challenges in the application of competition law. Competition policy and enforcement have traditionally focused on the prices charged and excess returns as indicators of social welfare. Such an approach has worked well in many smokestack industries, for example, when the question involves price-fixing between business firms in those industries. On the contrary, information technology industries differ from smokestack industries in that they are currently more dynamic than static. In practice, it seems that equilibrium is transitory, if it exists at all, in information technology industries. From this point of view, it is not surprising that competition policy and enforcement appear to have been difficult to implement, particularly in information technology industries (Sheremata 1998, p. 547). A critical question here is whether innovation-based competition (rather than price competition) should make competition authorities change the way competition legislation is applied or whether competition legislation as such should be modified. Because the topic is large, we will only concentrate...
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