Innovation by Dominant Firms in the Market: Damned If You Don’t… But Damned If You Do?

Posted by Social Science Research Network

Innovation by Dominant Firms in the Market: Damned If You Don’t… But Damned If You Do?

By Francisco Marcos (IE Law School)

Innovation is key for dynamic efficiency and one of the best recipes to increase long-term businesses’ profits and, at the same time, enhance consumer welfare. Modern high-technology markets offer a perfect account of the importance of innovation for business success: either firms keep apace innovating, or rivals will overcome them and they will be left aside by consumers.

History shows many examples of firms that have failed to sustain the innovation game and have faded away. At the same time it also demonstrates how many successful businesses have gained a powerful position in the market in a very short period of time by offering good innovative products or services to consumers at competitive prices.

Nevertheless, by being successful, firms sometimes have attained a dominant position in the market and that may have meaningful implications from the perspective of antitrust or competition law. In that situation, the experience in many countries shows that innovation decisions by dominant market players can be second-guessed by competition authorities in search for anticompetitive behavior.

This paper will assess the limits and dangers competition law enforcers face in their investigations and sanctioning antitrust proceedings in the assessment of anticompetitive unilateral conduct by innovating firms.

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