The drumbeat gets louder: is anti-competitive conduct trumping innovation as the foundation for high tech dominance?

Dangling at the end of a column that appeared in the October 6th issue of The Economist (“Bought and paid for”) are the following provocative words--

To a growing extent, the productivity gap between technologically advanced firms and laggards suggests anti-competitive behaviour rather than the superior innovative capacity of top firms. Productivity-enhancing innovations are supposed to spread, raising growth and incomes. That they no longer seem to accomplish this reflects barriers to competition that are supported by powerful firms, including non-compete clauses, overly tight intellectual-property rules and an accommodating attitude to acquisitions by market leaders. It seems ever clearer that, when corporations open their wallets to politicians, the public loses.

I say “dangling” because most of the piece (relying in part on a report from the National Bureau of Economic Research by Ufuk Akcigit, Salomé Baslandze, and Francesca Lotti) is devoted to the question of what happens when big business and government (aka “politics”) come into increasing contact. Sometimes lobbying can provide positive benefits, e.g., in removing excessive regulation. Too often, however, corporate lobbying simply leads to outsized benefits to companies who successfully bend the ear of receptive bureaucrats and legislators, what the column describes as “rent-seeking” behavior that benefits the private actors involved but contributes little or nothing to the greater commonweal.

As well are lobbying efforts geared at enabling companies to protect their business model against (over)zealous public scrutiny and even regulation by the shrewd exploitation of opportunities created by innovation. Thus, in the words of the column--

And [Merpel writes: didn’t her primary school teacher admonish never to begin a sentence with a conjunctive?] the network effects underpinning the dominance of platforms such as Facebook and Amazon ensure that they play an important social and economic role: the more people rely on them, the more attractive it becomes for others to do the same. This naturally draws regulators’ gaze, particularly as the effects of such dominance become clearer. Tech firms then seek to defend themselves in turn.

Whatever the precise context of the lobbying taking place, it is probably the notion that a dollar spent on lobbying is a dollar not spent on innovation that underlies the cautionary conclusions set out above. What do we make of this?

First is the suggestion that the gap in technology between an industry leader and the also-rans is less owing to innovation per se than behavior by the leader that makes it much more difficult for others to compete. Stated otherwise, it is not first and foremost innovation, but rather other factors, which ultimately enable one to enjoy and maintain a dominant position in various industries—even where that industry is technologically driven. Once the technological level of such an industrial leader is adequate, then the attention of such an industry leader turns, at least in part, from innovation to measures (and the deployment of resources in support of such measures) that are likely to preserve one’s market dominance.

What are such measures? The column points to non-compete clauses, “overly tight intellectual-property rules” and a loose view of what constitutes an anti-competitive acquisition involving market leaders. This Kat, already in the 1980’s, was taught that the law is wary of anti-competition clauses and tends to enforce them in a restrictive manner. At that time, however, the term “innovation” was far less central in the way that we viewed industrial organization and, as such, even if non-compete clauses were disfavored, the impact was not viewed at the level of markets and industries. Put “innovation” front and center, as we now do, and the anti-competitive potential of such clauses takes on potentially greater policy significance.

Moreover, the image of changing one’s job without changing one’s car pool came to symbolize high tech mobility and innovation. When such a dynamic comes to be viewed by an industry leader as a competitive threat, the counter-measure of enhanced use of non-compete clause becomes even more attractive.

The reference to “overly tight intellectual property rules” is curious, however, if only for the reason that nothing further is offered to explain what it means. Even given this silence, however, one can discern, lurking in the background, a clear preference for the “low protectionist” orientation that is forcefully promoted by some IP academics. If there is a wedge issue dividing the IP community, this is certainly it.

The professional conversation between “low protectionist” and “high protectionist” advocates has, like so many contentious issues in today’s public discourse, become increasingly strident. Still, the contours of the debate are more nuanced than often portrayed, which questions the seemingly unconditional acceptance of the “low protectionist” orientation in the column. The debate on this basic issue is not going away soon.

By Neil Wilkof

The picture on the upper right is by Tatoute and is licensed under the GNU Free Documentation License and the Creative Commons Attribution-Share Alike 3.0 Unported License.

The picture on the lower left is by Santeri Viinamaki and is licensed under the Creative Commons Attribution 4.0 International License.