Standing on the Shoulders of Dwarfs: Dominant Firms and Innovation Incentives

Over the last few decades a large share of the economy - the so-called `new economy' - has emerged in which innovation is a critical determinant of competitive outcomes and welfare. A salient feature of many of these industries is the presence of a dominant firm (IBM, Microsoft, Google, Facebook, Intel, etc). In these industries, the distinction between technology leadership and market leadership becomes relevant. Moreover, technology transfer - typically by acquisition - frequently assures the dominant firm remains on the technology edge. In this setting, a number of positive and normative questions arise. How does the antitrust treatment of dominant firms - in cases such as US vs Microsoft or DG Comp vs Intel - influence the rates of incremental and radical innovation? How do better markets for technology influence incremental and radical innovation? In this lecture, I tackle these and related questions.