Foundations and Limitations
Edited by Josef Drexl, Wolfgang Kerber and Rupprecht Podszun
Chapter 9: Competition, Innovation and Maintaining Diversity through Competition Law
9. Competition, innovation and maintaining diversity through competition law Wolfgang Kerber* INTRODUCTION 1. Market competition is a very complex phenomenon, which has many dimensions. Modern game-theoretic industrial economics is a powerful analytical tool for studying important aspects of markets and competition. However, it does not deal with all essential dimensions of competition processes in dynamic market economies. In a recent small article with the title ‘Complexity, Diversity, and Antitrust’ Farrell (2006) asks whether antitrust should protect diversity in situations where the complexity is too high to have reliable information about the right solutions. As an example, he uses the decision of collaborating drug companies to stop the development of a promising drug for peanut allergy treatment by one of the firms in favour of an already existing drug of one of the other companies. Would not the higher diversity of pursuing both approaches be one of the benefits of competition and should not ‘antitrust seek to protect such diversity’ (ibid, 166)? Farrell insists on the importance of a variety of experiments and claims that this ‘econodiversity’ is one of the crucial benefits of competition. Since it is hard to pin down and prove, he calls it the ‘dark matter of competition’ (Farrell 2006: 168–169). It was Hayek (1948, 1978) who first clearly emphasized this dimension of competition with his concept of ‘competition as a discovery procedure’. Starting with the assumption that the best solutions are often not yet known, competition is viewed as an evolutionary trial and error process,...
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