The Roles of Innovation in Competition Law Analysis
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The Roles of Innovation in Competition Law Analysis

Edited by Paul Nihoul and Pieter Van Cleynenbreugel

Rapid technological innovations have challenged the conventional application of antitrust and competition law across the globe. Acknowledging these challenges, this original work analyses the roles of innovation in competition law analysis and reflects on how competition and antitrust law can be refined and tailored to innovation.
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Chapter 2: The effects of mergers on innovation: economic framework and empirical evidence

John Kwoka

Abstract

Many mergers that now come before competition agencies raise questions about their effects on innovation instead of, or in addition to, standard antitrust concerns about prices and quantities of existing products. However, economic analysis of questions about innovation, and analysis of the effectiveness of competition policy directed at innovation, are less well informed and developed. This chapter analyzes new sources of data and other information about mergers and merger control in innovation-based sectors of the economy. The intent is to assist in developing good policy toward mergers in such industries by exploiting existing evidence about the effects of innovation-driven mergers and any trade-offs against standard concerns. The chapter first reports on a comprehensive analysis of known effects of actual mergers on innovation. This information would be derived from the growing number of so-called merger retrospectives – carefully controlled economic studies of the outcomes of mergers (mostly in the US). Next, the chapter develops and analyzes information about the policy responses of the antitrust agencies toward these same innovation-based mergers. This will cast light on the further questions of whether the agencies are successful in identifying mergers that adversely affect innovation, what kind of actions and remedies they employ in these cases, and whether the remedies prevent harms with respect to innovation. Finally, the chapter examines the US pharmaceutical sector, which is an important innovation-based industry that is being transformed by numerous recent mergers. Drawing on new information on approximately 25 mergers in the US industry since 2000, the chapter addresses in greater detail questions about the effects of mergers and the nature and effectiveness of policy responses in this key industry, before concluding with some observations about the trade-offs between innovation objectives and standard considerations in merger policy.

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