Dynamic Competition and Antitrust

by on October 14, 2009 · 0 comments

If you read nothing else this year about dynamic competition theory and antitrust, check out this recently-released paper by J. Gregory Sidak and David J. Teece, available from SSRN. Sidak and Teece explain why the current economic framework that formally underpins antitrust insufficiently accounts for “Schumpeterian,” “innovative,” or “dynamic” competition. They provide a good discussion of the insights from behavioral economics, evolutionary economics, Austrian economics, and corporate strategy that would be useful in remaking the economic foundations of antitrust. Then they explain implications for specific topics, such as market definition, defining potential competitors, mergers, and intellectual property.

Most intriguing is their claim that the antitrust agencies have been drifting toward dynamic competition analysis without always acknowledging that’s what they’re doing:

If a lesson can be generalized, it is that one should approach with considerable skepticism the august pronouncements of the suppleness of existing antitrust doctrine to accommodate consideration of dynamic efficiency. It is time for the antitrust enforcement agencies and the courts to address forthrightly the challenge of developing more dynamically efficient merger guidelines. Achievement of that goal would lay the foundation for an analogous refinement of substantive rules of liability, defenses, and remedies across antitrust law generally. (pp. 43-44)

Sidak and Teece note that the Federal Trade Commission and Antitrust Division’s recent solicitation of comments on their merger guidelines could provide an opportunity to articulate some new economic foundations for antitrust. After reading the list of things the FTC and DOJ do not intend to change, it looks to me like the agencies will cling pretty fiercely to many traditional static concepts used in antitrust analysis.  But two questions they raise provide glimmers of hope:

8. Should the Guidelines be revised to explain more fully … how market shares and market concentration are measured and interpreted in dynamic markets, including markets experiencing significant technological change?

15. Should the Guidelines be updated to address more explicitly the non-price effects of mergers, especially the effects of mergers on innovation?

Still, this seems narrow to me. “Normal” markets will remain subject to static analysis, while those special markets experiencing significant technological change might be analyzed differently.  That seems to define dynamic competition awfully narrowly.

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