The 'Enhanced No Economic Sense Test': Experimenting With Predatory Innovation

Abstract

This paper originates from a long-standing anachronism of antitrust law in regard to high-tech markets. Conventional wisdom assumes that antitrust law mechanisms are well suited to the study of practices in technology markets and that only adjustments are to be made here and there. This is untrue. Several practices fall outside the scope of antitrust law because mechanisms for assessing the legality of practices are not adequate. In fact, no one can accurately identify a typical legal approach for non-price strategies. A chaotic jurisprudence emerges from it, which we will show.

With this paper, our ambition is to contribute to the literature by advancing a new test, called the "enhanced no economic sense" test, to be applied to non-price strategies. Various tests have been designed over the years to address the legality of diverse practices under antitrust law. Some of them are based on price analysis, including the test of the equally efficient rival, the rising rivals' costs test, and the profit sacrifice test. Some others are based on comparison, such as the balancing test, the test of disproportionality, and the compatibility test. They all suffer from multiple flaws. None of them, in fact, address non-price strategies such as predatory innovation without creating numerous type-I or II errors. Conversely, the test proposed in this article results in the creation of a uniform rule of law, which will ultimately increase consumer welfare by encouraging companies to keep innovating.

Keywords: antitrust, non price strategies, predatory innovation, legality test, no economic sense

JEL Classification: K21