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.