Innovation Markets: An Overview

Ronald W. Davis
Atlanta, GA
 

For a more detailed discussion see Ronald W. Davis,
Innovation Markets and Merger Enforcement: Current
Practice in Perspective, 71 Antitrust L.J. 677 (2003)

Threshold Issues

• Does antitrust care about non-price competition?
  • In a merger context?
• Statutory bar to merger enforcement without a current product market?
• Prudential bar to enforcement?
  • Too hard to find the facts?
  • Too hard to make valid predictions?

What’s the Point of Enforcement?

• Regular markets: more output good, less output bad
• Innovation: more R&D input may not be good, and less may not be bad
• In principle, you look for the optimal amount of R&D, not the greatest amount
• But how do you know what’s the optimal amout?

Of Markets and “Markets”

To do antitrust merger enforcement to protect innovation, should we “define a market”?

• No buyers, no sellers in “innovation markets”
• Innovation: one of many steps in preparing to compete
• IP Guidelines definition: R&D for particular new goods or processes + close substitutes for that R&D

Who’s in the “Market”—and What are they Doing?

• IP Guidelines: those firms with the relevant assets and characteristics
• How to find them?
• How do know what they are doing?

Market Structure and Non-Price Competition

• What market structure best promotes innovation?
  • Monopoly?
  • High concentration?
  • Moderate concentration?
  • Low concentration?
• Any sound basis for presumptions—favorable or adverse?

Good Presumptions

• IP Guidelines (1995) safe harbor: 4 or more other firms
• Competitor Collaboration Guidelines (2000): safe harbor: 3 or more other firms
  • But, if it’s “merger-like,” see the Merger Guidelines
    • Which, BTW, say nothing about innovation markets!

Bad Presumptions

• Merger Guidelines § 1.51 c):
  “Where the post-merger HHI exceeds 1800, it will be presumed that mergers producing an increase in the HHI of more than 100 points are likely to create or enhance market power or facilitate its exercise. The presumption may be overcome . . .”
• Position of Commissioners Thompson and Harbour
• Chairman Muris’ view
• And Commissioners Leary and Swindle?

The Presumptions Debate: Where's the Beef?

Are we debating

• Whether the Genzyme deal was worth a close look?
• Whether facts could demonstrate no injury to competition?
• Whether prosecutors should prosecute (and courts will find liability) without a “story” of competitive injury?
• Who bears the risk of nonpersuasion?
• Whether the Commission could argue “prima facie case” in court?

Genzyme: Presumptions or Stories?

• The deal foreclosed (or not) a race for Orphan Drug Act exclusivity
• It foreclosed (or not) a possible challenge to first generation Pompe disorder therapy
• R&D synergies did (or did not) exist
• And were (or weren’t) merger specific
• Two tracks of R&D in the combined firm were better (or worse) than independent R&D
• Genzyme had an anticompetitive motive (or didn’t)