Competition Policy in Europe: Harming Incentives to Innovate

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Daniel Spulber, Sep 18, 2007

The European Court of First Instance, through its decision in Microsoft v. Commission, dealt a one-two punch to incentives to innovate. First, by penalizing Microsoft for bundling its Media Player with Windows, the court will make companies reluctant to add innovative features to their products. Second, by sanctioning Microsoft for not disclosing fundamental innovations to its server software to its rivals, the court will make companies think twice before investing in costly research and development (R&D). The deterrence of innovation does not stop there. The Court’s decision also deters innovation by competitors of leading firms. Why invest in costly R&D, when you can get it for free from the leading company in your industry? Simply send the leading company a request for the use of any and all of its innovations, and threaten to complain to the antitrust authorities if there is not full compliance. Since a leading company’s failure to supply the innovation is ruled to be an “abuse,” companies with smaller market shares will know where to obtain free innovations.

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Spulber (Sept. 2007)