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...Antitrust Is Breaking New Ground


...Antitrust Is Breaking New Ground

In America today, where few people can agree on anything, everyone favors innovation. No wonder. In a New Economy based on rapid technological change, innovation is the driving force for growth. Which is why the Justice Dept., in a radical change of policy, is making innovation the keystone for its antitrust policy. The primary justification for breaking Microsoft in two is promoting innovation. But unless the government spells out clearly exactly what its pro-innovation trustbusting policy means, there is danger that the New Economy could be hurt rather than helped (page 40).

This nascent antitrust policy needs a lot of work. First, the trustbusters must decide where to extend it after Microsoft. Our suggestion is to move cautiously and focus on making sure that access to network platforms remains open. Keeping networks open and allowing them to grow is legitimate business for antitrust policy in the New Economy. The Federal Communications Commission already is looking into America Online Inc., which is blocking some small companies from connecting to its popular instant-messaging network. And as access to the Internet shifts to broadband cable, keeping open access will become harder. Unlike phone companies, cable outfits are allowed to decide who gets on and who doesn't. If innovation is to be promoted, open access to cable must be a goal.

Antitrust policy will also have to deal with the tendency of many high tech markets to move toward monopoly. Treasury Secretary Lawrence H. Summers, in a speech titled "The New Wealth of Nations," said that in an information based-economy "the only incentive to produce anything is the possession of temporary monopoly power." He argued that the creative destruction that comes from the pursuit of that monopoly power drives economic growth. If that's true, then policy must ensure that monopoly remains temporary by virtue of keeping markets open to new rival monopolists who can crush the old.

Old Economy antitrust policy based on pricing was relatively clean and simple. Writing the rules for an innovation-based antitrust policy is far more daunting. There are clearly risks, but if the government limits its involvement and clarifies its policy, the promotion of innovation in a New Economy is the right focus for antitrust policy.

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