Antitrust, Innovation, and Competitiveness

LAWRENCE A. SULLIVAN AND ANN I. JONES

This chapter, as part of a larger inquiry into innovation and the impact of competition laws on the innovative process, is directed at single-firm conduct. Contrary to the position asserted by other contributors to this volume, it is our contention that there is nothing inherently inconsistent with the antitrust law's prohibitions against monopoly and the protection and encouragement of innovation. We remain to be convinced, by any sound empirical evidence, that there has been a significant diminution or reduction of America's innovative energies in recent years, or, if there has been, that antitrust is responsible for it. ¹ Before these two predicates are firmly established, it would be folly, as many business and political leaders are coming to recognize, to amend the antitrust laws to cure an invisible and unproved ill.

Traditional structural theory and the volumes of case law predicated on it, evidence a hostility to monopoly due, in not insignificant part, to the deadening effect that it has on the innovative process. As those materials demonstrate, monopolies threaten allocative, productive, and also dynamic efficiency. The monopolist may produce too little and charge too much; it may produce too little and pay too much for labor, management, or other inputs, thus taking its monopoly returns in the form of the quiet life; and, feeling no competitive spur, it may be inadequately innovative. Indeed, the monopolist may display all three of these characteristics and may, in addition, expend some of its monopoly returns to enhance or protect its power.

Given these baneful consequences, one might expect the law to forbid monopoly except where it is inevitable and then to regulate it. But Section 2 of the Sherman Act has never reached so far. The usual formulations teach only that a monopolist violates Section 2 when it engages in "exclusionary," "restrictive," or "anticompetitive" conduct--that is, when it uses power or position rather than

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