return. The same logical point implies that efforts by incumbent firms to raise (or maintain) entry barriers can be problematic. What matters is competition in the future; if entry barriers are low entrants contribute to that, while if entry barriers could be lower entry itself may be a task for the competition authorities.

1b) Hidden below that apparently simple remark are very stark policy analytic requirements. It must be possible that the industry has distinct competitive futures. It must be possible that private action (such as a merger) can steer the industry toward a less competitive future. It must be possible that policy intervention can help the industry toward a more competitive future. It must be possible for policy authorities to learn enough to be reasonably sure that their intervention will help the industry toward a more competitive future. This is inherently difficult, since competition lowers profits and the often most knowledgeable parties, sellers in the market, will not think of increasing competition as “help.”

1.e A number of observers believe that rapid technical change has rendered competition policy obsolete. This is an error, but we should not throw away the parts of it which are right. Rapid technical progress can make it harder for competition policy authorities to understand competitive futures well enough to act, and it can make it harder to act quickly enough to affect competitive outcomes. Neither of those is a bar to intervention, but both can be serious problems in particular cases.

The supposed general argument that competition policy is obsoleted by innovation rests on other arguments. It assumes that innovation success will sweep away current competition problems. A related argument is that the importance of long run competition (such as innovation competition) makes competition policy irrelevant. What both of these arguments miss is that competition policy can support innovation competition itself. There is competition in the long run, and competition in the long run can be impeded or advanced by competition policy.

1.d, the proposition that what competition policy really should do is get behind protections for inventors and artists, makes a similar mistake. It posits an opposition between competition and incentives for innovation in the economy. Often, this argument posits loss of innovation as a cost of increased competition, for example in the debate over stronger legal protection for inventors and artists. The problem with this argument is not in raising the question of whether, in some circumstances, competition and innovation are opposed. They are, sometimes. The problem with the false dichotomy is in assuming that they are always opposed. There is no theoretical or empirical support for this position in economics. The essential error in the position is ignoring the possibility of competitive innovation.

The competitive mechanism will be particularly important in long run competition, such as innovation races, under two circumstances. One is when long run competitive incentives are important. For example, when each of several firms would work harder on innovation under the threat of competition from other innovators. The other example is when different firms have different ideas or capabilities, so that the long run innovation capacity of a country or the world calls on multiple firms' innovative efforts.

With those ideas about how the principles can move toward application, I now turn toward a recent application, the Microsoft case. After examining that, I will return to forward looking policy issues.