Competition, Innovation, and Maintaining Diversity Through Competition Law
Abstract: Competition can be analyzed as an evolutionary (Schumpeterian or Hayekian) process of parallel experimentation and mutual learning (or variation and selection of new problem solutions), which allows to apply arguments and models of evolutionary innovation economics. Then the number and diversity of independently experimenting competitors can have a positive effect on the knowledge-generating function of competition, because a more diverse pool of problem solutions (as technologies) can increase the probability of being capable of responding quickly to exogenous shocks and of developing superior innovations. Therefore mergers and R&D agreements might also have a negative effect on the effectiveness of competition as process of parallel experimentation (parallel research). A number of positive and negative effects of a larger or smaller number of parallel experimenting firms are shown (trade off problems). Should and can competition law protect competition as a process of parallel experimentation? Although the Innovation Market Analysis developed interesting criteria for maintaining parallel research projects and protecting diversity, they used no appropriate theory about the benefits of protecting parallel research. An evolutionary approach to competition might be much better suited. Some ideas are discussed how competition law might be able to consider diversity and parallel experimentation.
