When is Static Analysis a Sufficient Proxy for DynamicConsiderations? Reconsidering Antitrust and Innovation
Joshua S. GansUniversity of Melbourne
First Draft: 29
This paper examines the claim that dynamic considerations play a particularlyimportant role in certain industries (in particular, those characterized by highrates of product innovation) and, consequently, render antitrust analysis based onstatic concepts inappropriate or misleading. By expositing and applying the fullydynamic model of Segal and Whinston (2007), I argue that, in many cases, staticanalyses are
misleading and that dynamic considerations (such as competition
for the market
) are not decisive in these analyses. I argue, however, that dynamicconsiderations can be important when the predominant mode of commercialization by innovative entrants is via cooperation rather thancompetition with incumbent firms; examples of cooperation include acquisitionand licensing. Therefore, this means that static measure of competition are likelyto be reinforced in certain circumstances by related dynamic considerations.
This paper was presented at the NBER Innovation Policy and the Economy Conference, 20
April, 2010,Washington DC, while I was a visiting scholar at Harvard University and the NBER. I thank Josh Lerner and Scott Stern for useful comments and Vivienne Groves for research assistance. All views representedhere are those of the author. The latest version of this paper is available at research.joshuagans.com.