Journal of Competition Law and Economics Advance Access published online on May 8, 2008
Journal of Competition Law and Economics, doi:10.1093/joclec/nhn016
UNLOCKING TECHNOLOGY: ANTITRUST AND INNOVATION
Technology lock-in advocates argue that governments should step in to coordinate technology adoption decisions. Due to the presence of network effects, advocates warn that consumers may fail to adopt the best technology, thus missing out on potential benefits. Even worse, consumers may split, adopting multiple technologies and thus missing out on the benefits of network effects. Due to coordination problems, consumers cannot mitigate the effects of bad technology choices and the economy becomes stuck with inferior innovations. This article demonstrates that consumer coordination solves the underlying network effects problem, thus eliminating technology lock-in. Network effects are confined at most to the information and communications technology and selected electronics industries, which have developed mechanisms for interconnection and interoperability. Firms have incentives to provide interconnection and interoperability when it is efficient to do so. Rapid technological innovation is apparent whereas technology lock-in is a rare phenomenon. Antitrust policy founded on technology lock-in arguments is misguided and is likely to damage incentives for innovation.
* Elinor Hobbs Distinguished Professor of International Business and Professor of Management Strategy, Kellogg School of Management, and Professor of Law (courtesy), Northwestern Law School, 606 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2013, USA. E-mail: jems{at}kellogg.northwestern.edu. Presented at the Searle Center on Law, Regulation and Economic Growth, Northwestern Law School, Research Roundtable on the Law and Economics of Innovation. For their helpful comments, I thank Henry Butler, F. Andrew Hansen, D. Bruce Johnsen, F. Scott Kieff, Lynne Kiesling, Peter Klein, Bruce Kobayashi, Stan Liebowitz, Geoffrey Manne, Stephen Margolis, Scott Masten, Francesco Parisi, Matthew Sag, Henry Smith, Jim Speta, Scott Stern, Christopher Yoo, and Martin Zelder. © Daniel F. Spulber, 2008.