Business Innovation and the Law Perspectives from Intellectual Property, Labour, Competition and Corporate Law
Perspectives from Intellectual Property, Labour, Competition and Corporate Law
Edited by Marilyn Pittard, Ann L. Monotti and John Duns
Chapter 14: Innovation through the lens of competition law
Innovation is at the heart of competition policy because of the strong link between innovation and efficiency. Efficiency is the main, some would say the sole, criterion by which competition policy judges and assesses conduct. In the blunt words of economist Philip Williams, ‘We should regulate for competition where that regulation enhances the efficiency with which resources are allocated. We should not regulate for com- petition if that regulation lessens the efficiency with which resources are allocated.’ Firms that innovate are efficient in that they develop products to meet the changing demands of their customers. Likewise, firms that fail to innovate are inefficient in this sense, as the resources they employ are not being directed to where they are most demanded. The social benefits of dynamic efficiency are well established. The efficiency that is generated by innovation (referred to as ‘dynamic’ efficiency because of its forward-focused, changing nature) is one of the key justifications universally offered for competition law. Dynamic efficiency and innovation are commonly described as being a prized outcome of a competitive market. One review of competition law, for example, described dynamic efficiency as being: the need for industries to make timely changes to technology and products in response to changes in consumer tastes and in productive opportunities. Competition in markets for goods and services provides incentives to under- take research and development, effect innovation in product design, reform management structures and strategies and create new products and production processes. In light of this established link between competition policy on the one hand,
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