Market Structure and Technical Advance: The Role of Patent Scope Decisions
ROBERT P. MERGES AND RICHARD R. NELSON
Many of the papers in this volume are concerned with the effect of antitrust law on technical advance in industry. Some--the Jorde-Teece paper (see Chapter 3), for example--argue that in its present form, U.S. antitrust law forecloses certain combinations of firms that, if implemented, would facilitate technical progress.
This is a long way from arguing that highly concentrated market structures are the best setting for technical advance, and Jorde and Teece do not make that case. However, since the time Joseph Schumpeter wrote Capitalism, Socialism, and Democracy, the issue of whether a highly concentrated industry or a structurally more competitive one is the best basis for technical change has been a prime topic for research and controversy among economists. While Schumpeter's name has been associated with the former position, he should not be implicated in it. He did point out that while perfect competition of the textbook variety was not the setting we had in our technically progressive industries, he did stress the importance of large firms capable of supporting significant R&D efforts, and he did argue that innovation was worthwhile for firms only if they could get some temporary monopoly on the technology they created. But the hallmark of Schumpeter's description of "capitalism as an engine of progress" is rivalry among firms in innovation.
It is not useful to review here the by now vast and inconclusive research on the question. Among other reasons Wesley Cohen and Richard Levin just recently reviewed this literature. 1 Suffice it to say that there is no evidence supporting the proposition that a highly concentrated industry is a necessary or optimal setting for technical advance. Contrary to rumors, Schumpeter never said that it was. Moreover, as Cohen and Levin point out, it long has been apparent to many analysts that, misreading of what Schumpeter actually argued aside, the whole debate has been unduly narrow. Much more than simply the "structure" of an industry matters in determining the rate and direction of innovation. The maturity of the technology matters, and the nature of the customers. The pres-