Innovation and the Limits of Antitrust

Innovation and Economic Growth and Competition Policy and Antitrust

Article Snapshot


Geoffrey Manne and Joshua Wright


George Mason Law & Economics Research Paper #09-54; Lewis & Clark Law School Legal Studies Research Paper #2009-26; Journal of Competition Law and Economics, forthcoming


This paper surveys errors in antitrust cases against high tech firms and suggests changes to antitrust law.

Policy Relevance

Antitrust enforcement against innovative firms should be much less aggressive, to avoid harming consumers when courts and economists fail to assess new trends correctly.

Main Points

  • Increasingly, antitrust enforcement actions are focused on leading high-tech firms. Microsoft was the last prominent target; the current prominent target is Google. Officials at the Department of Justice (DOJ) and in Europe tend to ignore the risk of errors in cases involving high-tech firms.

  • “False positives,” when a firm is prosecuted by mistake even though its actions benefit consumers, are worse than “false negatives.” “False negatives” are self-correcting in time: if a firm acts so as to harm consumers and enforcers fail to act, competitors arise to serve consumers better.

  • Errors that harm consumers are especially likely to arise in innovative industries because
    • Innovation gives rise to new business practices poorly understood by economists.
    • Innovation drives economic growth, so errors will have greater consequences.

  • Recent antitrust cases that harmed consumers include the United State’s case against Microsoft, the EU’s case against Microsoft, and cases involving film, biopsy equipment, and medicines.
    • Errors arise from thinking that monopolies harm consumers, when they often do not.

  • Cases are often wrongly brought in cases involving business innovation, including cases involving supermarkets, motion pictures, retailing, manufacturing, and franchising.

  • The “rule of reason,” wherein courts look at each case to see if consumers are helped or harmed, is not a workable rule either, because it requires courts to understand economics well.

  • The best rules will be simple, and create “safe harbors” for new products.
    • To prosecute mergers or monopolies, enforcers should prove harm to consumers.
    • Triple damages should be eliminated in private antitrust suits.
    • Evidence of intent should not be considered relevant.
    • Refusing to share intellectual property should be legal unless proven harmful.

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