Regulating Innovation: Competition Policy and Patent Law under Uncertainty

Innovation and Economic Growth and Competition Policy and Antitrust

Article Snapshot


Geoffrey Manne and Joshua Wright


Cambridge University Press, 2009


This chapter describes key topics relating to economic growth and the regulation of innovation.

Policy Relevance

Economists do not understand the relationship between regulation, innovation, and economic growth well, suggesting that regulators are likely to make poor decisions in this area.

Main Points

  • The relationship between regulatory policy and innovation is not well understood, although innovation is critical to economic growth.  Very few empirical studies have been done.
    • Key aspects of innovation regulation include competition policy (antitrust) and intellectual property law.

  • Different regulatory policies entail tradeoffs between innovation, growth, competition, freedom, and other goals. Analysis that uses economic concepts to assess the behavior of government as well as private firms, known as New Institutional Economics, can help assess the tradeoffs.

  • The idea of “creative destruction,” that monopolies would in the long run be destroyed by innovative newcomers, suggests that aggressive antitrust enforcement can be harmful in the long run (the dynamic view) even if it helps consumers in the short run (the static view).
    • Scholars ask what role concerns about innovation should play in antitrust cases.

  • Error cost analysis calls for policymakers to consider the risks that judges and agencies will make errors in enforcing regulations, particularly in antitrust cases involving innovation.

  • Many have called for patent reform or for weaker patents, but the role that patents play in innovation is still not well understood.

  • Scholars in this book argue that:
    • Innovation is best supported by strong, stable law and organizations, not by industrial policy that tries to support particular sectors.
    • New business structures such as bundling and networks have been poorly understood by regulators, and may best be left to market forces.
    • Regulators should consider the risks that they will make errors, and the importance of change in the long run, in enforcing competition rules.

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