When is Static Analysis a Sufficient Proxy for Dynamic Considerations? Reconsidering Antitrust and Innovation

Abstract

This paper examines the claim that dynamic considerations play a particularly important role in certain industries (in particular, those characterized by high rates of product innovation) and, consequently, render antitrust analysis based on static concepts inappropriate or misleading. By expositing and applying the fully dynamic model of Segal and Whinston (2007), I argue that, in many cases, static analyses are not misleading and that dynamic considerations (such as competition for the market) are not decisive in these analyses. I argue, however, that dynamic considerations can be important when the predominant mode of commercialization by innovative entrants is via cooperation rather than competition with incumbent firms; examples of cooperation include acquisition and licensing. Therefore, this means that static measure of competition are likely to be reinforced in certain circumstances by related dynamic considerations.

Keywords: innovation, antitrust, exclusion, tying, licensing

JEL Classification: K21, L40