2007 Papers
- Robert D. Cooter
- Marco Iansiti
- Stan J. Liebowitz and Stephen E. Margolis
- Keith N. Hylton
- Douglas G. Lichtman
- Howard A. Shelanski
- Daniel F. Spulber
- Joshua D. Wright
Robert D. Cooter (with Hans-Bernd Schaefer):
Law, Innovation, and the Poverty of Nations
Abstract: Sustained growth occurs in developing nations through improvements in markets and organizations. Entrepreneurial innovation resembles biological mutation that is unpredictable before it occurs and understandable afterwards. It is unpredictable because it begins with an innovator who acquires private information and earns extraordinary profits. It is understandable because its ends with the public figuring out the innovation and all investors earning ordinary profits. These characteristics of innovation have important consequences for law and policy to foster economic growth. Government officials who rely on public information cannot predict which firms or industries will experience rapid growth. Consequently, industrial policies that promote growth are unlikely to succeed. Proponents of industrial policy today make the same mistake as the mercantilists whose interventions Adam Smith attacked as a cause of national poverty. In contrast, secure property and contract rights, and effective business law (especially the laws regulating financial markets), create conditions under which competition naturally produces entrepreneurial innovation and nations become rich. The main obstacle to sustained economic growth in poor countries today is ineffective civil and business law.
Marco Iansiti (with Greg Richards):
Creative Construction: Assimilation, Specialization, and the Technology Life Cycle
The paper examines the innovation lifecycle and its implications for competition and public policy. It draws from existing literature, case studies and product innovation data to illustrate the workings of technological “assimilation”: namely, how technological innovations that were once marketed as individual products become integrated into broader platforms, which in turn provide the building blocks of further innovation. Relying on the findings of recent patent citation studies, the paper finds that certain “core” innovations serve as a broad foundation for future generations of innovative products. Specific “keystone” (Iansiti and Levien 2004) strategies followed by firms can increase the dissemination of such core innovations in an industry, shaping the evolution of sometimes vast ecosystems of beneficiaries. The paper summarizes implications for managers and policy makers. Long-term beneficial outcomes include new opportunities for many organizations, increased competition, specialization and “niche creation.”
Stan J. Liebowitz and Stephen E. Margolis:
Regulation of Bundling in Standards and New Technologies
In a number of distinct product markets, regulators have acted against bundling of product features or services. Important examples include regulatory opposition to patent pools, cable television programming, software products, hardware-software combinations, and telephone service. These arrangements often appear to be attractive ways of marketing information goods. In many of these cases, bundling solves a pricing problem regarding non-rival goods, in others it offers production or service cost advantages. Political or legal opposition to bundling often originates with competitors who wish to sell individual components of a bundle, or from consumers who wish to buy one component of a bundle, usually at some a pro-rata price. This paper will present an overview of bundling arrangements and consider why they arise in the marketplace. We will also evaluate some of the claims that are used to support regulations imposing unbundling.
Keith N. Hylton (with Haizhen Lin):
Section 2 and Article 82: A Comparison of American and European Approaches to Monopolization Law
This paper provides a general overview of the differences between American and European monopolization law. American courts have taken a relatively conservative approach toward monopolization law, in the sense of showing reluctance to penalize a firm simply because of its monopoly status, and of allowing wide scope, at least at the level of pure legal doctrine, for efficiency defenses to be asserted. Europe, in comparison, has taken an interventionist approach. Error-cost analysis provides a justification for the American approach. The paper concludes with an empirical examination, suggesting that the scope of a country’s monopolization law is inversely related its degree of trade dependence.
Douglas G. Lichtman (with Mark Lemley):
Rethinking Patent Law's Presumption of Validity
The United States Patent and Trademark Office is tasked with the job of reading patent applications and determining which ones qualify for patent protection. It is a Herculean task, and the Patent Office pursues it subject to enormous informational and budgetary constraints. Nonetheless, under current law, courts are largely bound to defer to the Patent Office's decisions regarding patent validity. In this paper, we argue for reform. Deference to previous decision-makers is appropriate in instances where those previous decisions have a high likelihood of accuracy, and the patent system should endeavor to create processes that fit this mold. But granting significant deference to the initial process of patent review is indefensible and counter-productive. Patents should be vulnerable to challenge until and unless they are significantly evaluated in an information-rich environment. That would better serve the patent's systems long-run incentive goals, and it would give patent applicants better incentives to file for genuine inventions but leave their more obvious and incremental accomplishments outside the patent system's purview.
Howard A. Shelanski:
IP Reform, Antitrust Reform, and the Duty to Deal under the Sherman Act
At the same time that the DOJ and FTC are reviewing enforcement policy for Section 2 of the Sherman Act, parallel efforts are ongoing to rethink and reform intellectual property (IP) policy to make it harder for firms to foreclose competition with weak or questionable IP rights. This paper argues that the potential outcomes of IP reform could matter for aspects of antitrust reform, notably for policy toward unilateral refusals to deal. This paper agrees with some commentators that a rule-of-reason approach to refusal to deal has potential advantages over either per se legality or the conventional essential-facilities test, and that the policy problem is to decide how strict a test the courts and agencies should apply in assessing the reasonability of refusals to deal with rivals. It adds to the discussion by showing why IP reform is a relevant consideration in that choice and by explaining how more refined IP rights can weigh in favor of less-strict enforcement against refusals to deal. This paper argues that antitrust authorities should therefore keep an eye on IP reform and take into account how it might affect enforcement policies under section 2 of the Sherman Act.
Daniel F. Spulber:
Antitrust in Markets with Network Effects
Network effects refer to the benefits that consumers receive when other consumers adopt a technology, join a communications network, or consume the same good. Many economists and legal scholars argue that the presence of network effects creates a form of market failure known as “network externalities.” Based on this alleged market failure, advocates recommend new forms of antitrust and regulation targeted at particular firms in the communications and information technology industries. The debate over network effects is likely to have major consequences for these industries, with effects comparable to landmark antitrust cases involving IBM, AT&T, and Microsoft. The article builds on path breaking work by S.J. Liebowitz and Stephen E. Margolis that convincingly argued that network externalities did not constitute market failure. The article draws upon theoretical work by D. F. Spulber on the structure of networks and on network effects. The article demonstrates that many aspects of network effects applied in antitrust discussions are based incorrect interpretations of economic analysis. This article begins with a comprehensive examination of network effects that addresses the legal, economic, and technological basis for this phenomenon. The article corrects a number of important misconceptions regarding the economics of network effects. Second, the article considers whether market institutions are capable of adjusting to address network effects or whether market failure leads to “network externalities.” Third, the article examines how network effects arguments call forth various types of antitrust policy. Fourth, the articles shows that while network effects are an important economic phenomenon, market institutions are fully capable of addressing these effects. Network effects do not constitute a major market failure and antitrust policy based on the “network externalities” is likely to have adverse impacts on both competition and innovation.
Joshua D. Wright:
Antitrust, Multi-Dimensional Competition, and Innovation: Do We Have An Antitrust-Relevant Theory of Competition Now?
Harold Demsetz once claimed that "economics has no antitrust relevant theory of competition." Demsetz offered this provocative statement as an introduction to an economic concept with critical implications for the antitrust enterprise: the multi-dimensional nature of competition. Competition does not take place upon a single margin, such as price competition, but several dimensions that are often inversely correlated such that a liability rule deterring one form of competition will result in more of another. This insight has important implications for the current policy debate concerning how to design antitrust liability standards for conduct involving both static product market competition and dynamic innovative activity. The primary purpose of this essay is to revisit Demsetz's broader challenge to antitrust regulation in the context of the frequently discussed tradeoffs between innovation and price competition. I summarize recent developments in our knowledge of the relationship between competition and innovation, highlighting the deficiencies that significantly constrain antitrust enforcers' abilities to confidently calculate inevitable welfare tradeoffs. I conclude by discussing policy implications that follow from these limitations.
