Antitrust regulation, innovation and industry dynamics

Abstract

This paper presents a framework for identifying the impacts of antitrust regulation on innovation and industry dynamics. I consider two inventor types: multi-product incumbent firms and startups not yet in product markets. They pursue external innovation, which results in Schumpeterian competition; and internal innovation, which incumbent firms use to refine current products in their portfolios. I find that weaker regulation gives incumbent firms greater market power to block competition, reducing incentives for external innovation, but raising incentives for internal innovation. Less heavy-handed regulation slows industry dynamics and raises industrial concentration; however, more lenient regulation may increase aggregate innovation depending on parameter value.