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    Antitrust Law Journal

    Volume 86, Issue 3

    Antitrust for Innovation: A Progress Report

    Richard J. Gilbert and A. Douglas Melamed

    May 22, 2025

    81 min read

    Antitrust Antitrust Litigation & Enforcement Antitrust Policy & Legislation Mergers Monopoly Power Unilateral Conduct

    Summary

    • Innovation has a greater impact on economic welfare than static price effects, yet innovation effects have rarely been important in antitrust law and enforcement.
    • While mergers and other conduct can sometimes support innovation through scale, internalization of technological spillovers, or integration of complementary assets, they can harm innovation by eliminating potential or actual innovators, reducing incentives due to internal cannibalization and diminished competition, or creating organizational dysfunctions. Vertical mergers may also suppress innovation by foreclosing access to essential inputs or markets.
    • Mergers can harm innovation by eliminating potential or actual innovators or by reducing incentives because of internal cannibalization. Vertical mergers may also suppress innovation by foreclosing access to essential inputs or markets.
    • Dynamic competition analysis and market definitions focused on R&D are useful tools for assessing innovation impacts in both merger and conduct cases. Increased focus on innovation theories of harm and benefit can, depending on the circumstances, strengthen some cases and improve the remedies, illuminate possible defenses that ought to be taken into account, and help educate the courts about the important relationship between competition and innovation.
    Antitrust for Innovation: A Progress Report
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    Introduction

    Antitrust law is intended to protect competition in order to promote economic welfare. Economists have long understood that innovation can have a far more significant impact on economic welfare than the deadweight loss from prices that exceed levels in competitive markets or from other static inefficiencies. Therefore, to the extent that antitrust law is focused on economic welfare, it needs to be shaped at least in part in light of how competition affects innovation. For this purpose, innovation means a new or improved product or process that differs significantly from previous products or processes and that is put into active use by the innovator or others.

    Partially as a consequence of developments in highly dynamic and research-intensive sectors of the economy, the connection between antitrust law and innovation is of increasing importance to competition policymakers and scholars. The authors of this article have written about that connection. The purpose of this article is to describe the evolution of that connection and to provide a preliminary assessment of the extent to which antitrust enforcement reflects the best current understanding of how competition affects innovation.

    In Part I, we review the understanding of lawmakers and judges about the relationship between competition and innovation in the first decades after the enactment of the Sherman Act in 1890. In Part II, we summarize what economics teaches about that relationship. In Parts III and IV, we review the more recent treatment of innovation by antitrust enforcement agencies and courts under the Sherman Act and the Clayton Act. Finally, we add some thoughts regarding analytical approaches for conduct or mergers that affect innovation in Part V.

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