Innovation and Cooperation: Implications for Competition and Antitrust

N k robel Laureate Robert Solow and his colleagues on MIT's Industrial Productivity Commission recently noted (Dertouzos, Lester, and Solow, 1989, p. 7): "Undeveloped cooperative relationships between individuals and between organizations stand out in our industry studies as obstacles to technological innovation and the improvement of industrial performance" and later (p. 105) that "interfirm cooperation in the U.S. has often, though not always, been inhibited by government antitrust regulation." These striking conclusions warrant further exploration. Unfortunately, industrial organization textbooks still discuss horizontal cooperation and competition almost exclusively in terms of standard cartel theory. (On the other hand, vertical cooperation/contracting is viewed differently, and some textbooks provide treatments of supplier-buyer relationships in which cooperation is viewed as enhancing efficiency.) Both in the textbooks and in policy discussion among economists, cooperation among competitors is highly suspect, being perhaps the last bastion of what was once referred to as the "inhospitality tradition" in antitrust. As a result, very little literature addresses how cooperation among competitors can promote competition, notwithstanding that cooperation among competitors may sometimes be essential if innovating firms are to compete in today's increasingly global markets (Imai and Baba, 1989). Such cooperation is already important in Japan and in Europe. 1