## 1 ) Introduction

There is very wide agreement on the guiding principles for competition policy. It should rely on the use of the competitive market mechanism. Government activism should be limited to ensuring that the market mechanism is permitted to work. Competition policy should not be regulatory, attempting to supplant the market competitive mechanism. Instead, it should support the market mechanism. Those principles apply as much to the application of competition policy to innovation as they do in other contexts.

Agreement on those broad principles does not make it obvious what is the appropriate policy action in specific circumstances and cases. Some have tried, and largely failed, to reduce the broad general principles to a specific set of rules and policies that could be applied automatically. Instead, thoughtful and analytical application of the principles is important. Accordingly, there is considerable value to conferences like this one. Scholarly and practitioner discussion of the application of competition policy principles is highly valuable in ensuring high quality policy formation.

The desire to make competition policy analysis simple has led to a false dichotomy. Some posit that “the free market” and government are simply opposites. Any intervention by government is a departure from “the free market,” in this view. In this view, the set of policy interventions which respect competition policy principles is empty. While the view gives very clear policy guidance – never act – the clarity of the guidance is its only virtue.

The assumption that government and market forces are opposites – and it is no more than an assumption – is false. As a result, that assumption offers little help in respecting competition policy principles in actual policy practice. Not all potential competition policy actions are pro-competitive, but it is a mistake to think that all potential competition policy actions are anti-competitive. Competition policy principles do not mean that there is no scope for governmental action. The goal of respecting those principles calls for the hard work of discerning where government action is pro-competitive.

In the area of pro-innovation competition policy, another false dichotomy has sprung up. This is the view that innovation and competition are opposed, so that policy must choose between fostering innovation and fostering competition. This simplistic view is equally false and equally dangerous as a policy implementation guide.

My goal in this paper is to identify the main tasks of competition policy, to focus on the tasks related to innovation, and to begin to explore ways in which carefully applying broad competition policy principles to innovative contexts will lead to better policy formation. I focus on three main tasks, ordinary horizontal competition analysis, monopolization, and limiting anticompetitive government action.

My intention is to write as an economist who analyzes competition and innovation rather than to analyze specific legal rules or policies. That is, I de-emphasize the “how to” aspects, the more formalistic policy analyses and emphasize the “why to.” Starting from the principles of competition policy, I move toward the careful analytic application of those principles. The use of a formalistic or narrowly rule-based approach is usually an error in competition policy formation, especially around innovation. “How-to” should