When is inter-firm coordination beneficial? The case of innovation

We are used to the idea that collusion among firms is legitimately presumed to be damaging to the public interest, and that the antitrust authorities are fully justified in taking coordination of prices to merit prohibition p er se as inexcusable in any circumstances. One reaches that conclusion when one thinks about price as the matter being decided upon and when the coord inating parties are horizontal competitors. But, as those who have studied the issue know, joint decisions can in some general cases materially promot e the public interest if those decisions deal with matters other than price . Even coordination of prices can be desirable if the firms involved are ve rtically, rather than horizontally, related. Indeed, this is widely recogni zed by antitrust authorities, who, for example, take a more favorable view of vertical coordination than of horizontal coordination and have frequentl y avoided interference in research joint ventures. The central point of thi s paper is that, with important exceptions, coordination on innovation and on the supply of proprietary technical information to competitors can be hi ghly beneficial to the economy, enhancing both its static efficiency and it s growth. The policy implication is that regulatory agencies and the courts should exercise extreme restraint in interfering with such joint decision making, though they should maintain some degree of vigilance to ensure that it does not transform itself into anti-competitive behavior that profits a t the consumer's expense. (C) 2001 Elsevier Science B.V. All rights reserve d.