Can government policy encourage technology innovation in the short run? Probably not—while the government does have plenty of long-term levers, such as spending on basic research and investment in science and engineering education, there are few ways to speed up innovation over the next year.
Rather, government policy is actually quite capable of discouraging innovation in the short-run, through outdated regulation and restrictive antitrust policy that does not take the importance and uniqueness of the technology sector into consideration.
While innovation can come from any industry, the technology sector is particularly important, as it has been the main source of growth and innovation in the economy for the past 35 years. Technological advances over the last decade have facilitated the emergence of innovation “ecosystems,” or platforms on which many different companies can build products or provide services, in which mergers and acquisitions have played a large part. Moreover, a unique feature of the technology sector is that the constant innovation companies need to stay profitable creates new markets and keeps competition active.
However, antitrust policy its current form does not recognize these characteristics. Instead, current application of antitrust regulations can impede the virtuous circle of nurturing innovation through startups and acquisitions. By slowing down or blocking acquisitions, antitrust policy can limit the exit routes for startups, potentially reducing their value and making it less attractive for investors to put their money into the next round of innovative new companies. In this regard antitrust policy has the potential to slow the speed of technological innovation, even though the benefits to the rest of the economy are connected to the speed at which new innovations are moved to market and scaled up.
In Innovation by Acquisition: New Dynamics of High-tech Competition, we explore the role of technology acquisitions in encouraging innovation, facilitating economic growth, and stimulating jobs. Specifically, we examine the question of whether technology acquisitions facilitate innovation, and in particular high-impact innovations. We argue that, when done correctly, acquisitions in the technology sector can and have encouraged innovation by bringing new products to market faster and more effectively.
What’s more, we find that acquisitions and innovation in the technology sector are positively associated with economic growth and job creation, an important consideration as we struggle to devise new, cost-effective ways to stimulate the economy and create jobs.
Looking at technology acquisitions from this perspective provides a different framework from which to assess the potential implications of excessive antitrust regulations, and current antitrust policy.
