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How Antitrust Enforcement Can Spur Innovation: Bell Labs and the 1956 Consent Decree

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  • Watzinger, Martin
  • Fackler, Thomas A.
  • Nagler, Markus
  • Schnitzer, Monika

Abstract

Is compulsory licensing an effective antitrust remedy to increase innovation? To answer this question, we analyze the 1956 consent decree that settled an antitrust lawsuit against Bell, a vertically integrated monopolist charged with foreclosing the telecommunications equipment market. Bell was forced to license all its existing patents royalty-free, including those not related to telecommunications. We identify the effect of the consent decree on follow-on innovations building on Bell patents by using exactly matched non-Bell patents as control group. We show that the consent decree led to a lasting increase in innovation but only in markets outside the telecommunications sector.

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  • Watzinger, Martin & Fackler, Thomas A. & Nagler, Markus & Schnitzer, Monika, 2020. "How Antitrust Enforcement Can Spur Innovation: Bell Labs and the 1956 Consent Decree," Munich Reprints in Economics 84713, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:84713
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    5. Naudé, Wim & Nagler, Paula, 2022. "The Ossified Economy: The Case of Germany, 1870-2020," IZA Discussion Papers 15607, Institute of Labor Economics (IZA).
    6. Watzinger, Martin & Schnitzer, Monika, 2022. "The Breakup of the Bell System and its Impact on US Innovation," Rationality and Competition Discussion Paper Series 341, CRC TRR 190 Rationality and Competition.
    7. Fabian Gaessler & Dietmar Harhoff & Stefan Sorg & Georg von Graevenitz, 2024. "Patents, Freedom to Operate, and Follow-on Innovation: Evidence from Post-Grant Opposition," Rationality and Competition Discussion Paper Series 494, CRC TRR 190 Rationality and Competition.
    8. Markus Nagler & Monika Schnitzer & Martin Watzinger, 2022. "Fostering the Diffusion of General Purpose Technologies: Evidence from the Licensing of the Transistor Patents," Journal of Industrial Economics, Wiley Blackwell, vol. 70(4), pages 838-866, December.
    9. Ashish Arora & Sharon Belenzon & Andrea Patacconi & Jungkyu Suh, 2020. "The Changing Structure of American Innovation: Some Cautionary Remarks for Economic Growth," Innovation Policy and the Economy, University of Chicago Press, vol. 20(1), pages 39-93.
    10. Gaessler, Fabian & Harhoff, Dietmar & Sorg, Stefan, 2019. "Bargaining Failure and Freedom to Operate: Re-evaluating the Effect of Patents on Cumulative Innovation," Rationality and Competition Discussion Paper Series 220, CRC TRR 190 Rationality and Competition.
    11. Robin Mamrak, 2023. "Antitrust and (Foreign) Innovation: Evidence from the Xerox Case," Rationality and Competition Discussion Paper Series 396, CRC TRR 190 Rationality and Competition.
    12. Naudé, Wim & Nagler, Paula, 2017. "Technological Innovation and Inclusive Growth in Germany," IZA Discussion Papers 11194, Institute of Labor Economics (IZA).
    13. Ajay Bhaskarabhatla & Yiting Deng & Yongdong Liu, 2024. "Open disclosure using invention pledges: a case study of IBM," The Journal of Technology Transfer, Springer, vol. 49(4), pages 1532-1566, August.
    14. Poege, Felix, 2022. "Competition and Innovation: The Breakup of IG Farben," IZA Discussion Papers 15517, Institute of Labor Economics (IZA).
    15. Kovács, Olivér, 2020. "Gazellák az iparpolitika tükrében, I [Gazelles and industrial policy, Part 1]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 54-87.
    16. Carl Benedikt Frey & Giorgio Presidente, 2024. "Privacy regulation and firm performance: Estimating the GDPR effect globally," Economic Inquiry, Western Economic Association International, vol. 62(3), pages 1074-1089, July.
    17. Michael Klein & Yibai Yang, 2024. "Blocking Patents, Rent Protection and Economic Growth"," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 52, pages 1-20, April.
    18. Po-Hsuan Hsu & Hsiao-Hui Lee & Tong Zhou, 2022. "Patent Thickets, Stock Returns, and Conditional CAPM," Management Science, INFORMS, vol. 68(11), pages 8343-8367, November.
    19. Valentiny, Pál, 2024. "Mennyire innovatívak a Big Tech vállalatok? [How innovative are Big Tech companies?]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 22-56.
    20. Cabral, Luis, 2018. "Standing on the Shoulders of Dwarfs: Dominant Firms and Innovation Incentives," CEPR Discussion Papers 13115, C.E.P.R. Discussion Papers.
    21. Oliver Falck, 2019. "Brauchen wir eine aktive europäische Industriepolitik?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 72(10), pages 12-15, May.
    22. Naudé, Wim & Nagler, Paula, 2021. "The Rise and Fall of German Innovation," IZA Discussion Papers 14154, Institute of Labor Economics (IZA).

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    More about this item

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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