Feasibility study on the microeconomic impact of enforcement of competition policies on innovation: final report

Following seminal contributions from two of the giants of 20th century economics, Schumpeter and Arrow, the relationship between competition and innovation has long been hotly debated, but the general consensus is that competition, whether for the market or in the market, is an important stimulus to innovation. This provides an important additional justification for competition policy, beyond the static purely price-based perspective. Remarkably however, we know relatively little about how specific competition policy interventions have impacted on firms’ innovation activities. So whilst the impact evaluation literature has made important strides in recent decades in assessing the static gains which have been driven by anti-trust and merger control, there have only been very few studies evaluating the impacts of individual policy decisions in this area. The main objective of this study is to explore whether, and how far, such impact evaluation exercises are feasible for competition and innovation. For this reason DG COMP commissioned a team of academics led by Peter Ormosi at the Centre for Competition Policy, University of East Anglia, to review the existing literature, and to propose a rigorous analytical and methodological framework which can be used to evaluate cases. As an illustration of this framework in action, the study provides a pilot evaluation of the Seagate/Samsung and Western Digital/Hitachi mergers. The findings of this case study prove to be interesting in their own right – shedding some new light on these important mergers. But far more important for present purposes, it establishes that the methodology is viable, albeit with important lessons to be learnt. The objective of this study was to offer a detailed literature review, develop a methodological framework, collect data on three different areas (R&D spending, patents, and product characteristics), and analyse it. Our task was to identify what is feasible, what we can learn in terms of the applied methodology, and also to provide preliminary results on how innovation was affected by the 2012 consolidation of the HDD market.