Innovation

New and improved products, processes, and services are created through innovation, helping to create new businesses and economic growth. Dynamic competition to innovate provides a significant share of the consumer benefits associated with competition, and can have greater impact on consumer welfare than static price competition.

The basic conditions of competition can impact innovation. Competitive rivalry can encourage firms to pursue a dynamic path of innovative development. Competition policy has a potentially important role to play in encouraging innovation through the promotion of regulatory reforms that prevent foreclosure of existing competitors from reaching customers or suppliers and that facilitate market entry and enhance competition.

The potential benefits to consumer welfare from firm efficiencies and collaborative efficiencies that lead to innovation can be significant, thus warranting careful assessments by competition agencies of the potential for certain business conduct to create more rapid or enhanced innovation. The liberalization and deregulation of certain innovative-driven markets, e.g. telecommunications, provide illustrative examples of competition lowering prices and encouraging innovation and investment.

The relationship and links between competition and innovation is complex. Further, it can be challenging to balance dynamic efficiency gains from innovation that manifest in the longer term, against more static assessment of competition effects in the short-term. See the sample resources below for further details.

 

Resources

A Vision for Competition, Competition Policy towards 2020, Report from the Nordic competition authorities, No. 1/2013, http://www.kkv.se/upload/Filer/Trycksaker/Rapporter/nordiska/Nordic_report__Vision_For_Competition_2013_webb.pdf

The European Commission has found that the liberalization of the European telecoms markets from 1998 has brought more competition to the markets, and in turn brought major benefits to consumers in the form of lower prices and better services. Similarly, a study in the United Kingdom found a 90 per cent reduction in the cost of international telephone calls between 1992 and 2002 as a result of deregulation.