Innovation in EU competition law: The resource-based view and disruption

Innovation has so far been handled by competition law according to market structure, that is to say, assuming that market power allows undertakings to evade competitive pressure including those which spur innovation on. This structural approach has fitted innovation in a tried-and-tested analytical and normative framework. Its limits have nonetheless become apparent as competition law is increasingly hemmed by a static outlook and called to apply to harm to innovation unrelated to market power. As such, this paper proposes complementing a structural approach with two advances from strategic management studies.

The first advance is the ‘resource-based view’, which connects competitive advantage with undertaking heterogeneity. Since undertakings do not have the same innovation capabilities, competitive markets may not compensate the exclusion of innovators. Harm to innovation is thus centred on assets with innovation capabilities, as shown by cases of abusive refusal to licence and parallel research. Competing claims over these assets are to be resolved based on the differences in capabilities, and whether intervention affects competitive advantage and not just intellectual property rights.

The second advance is the theory of disruptive innovation, which explains major changes in consumer preferences and production methods. Strategic management has established that an inefficient start is an integral part of disruption, allowing disruptors to be ignored until their productive efficiency increases enough to shift the market. This contrasts with competition law’s assumption that the exclusion of less efficient competitors is beneficial for market structure. Competition law must therefore adapt to strategies against disruption which do not immediately degrade competitive parameters.