Innovation Market Analysis -- Lessons from the Genzyme-Novazyme Acquisition
1 July 2004
By Dr. Richard Rapp
By definition, an analysis of the potential competitive impact of a proposed merger or acquisition is a forward-looking inquiry. Will prices rise after the merger? Will there be a decline in product quality or service? For products that are already available in the marketplace, this undertaking typically requires a careful understanding of the marketplace, the application of relevant economic theory, and an empirical study of historical and current market data. But what about transactions that involve products or services that have not yet been invented or sold?
In this chapter from Economics of Antitrust: New Issues, Questions, and Insights, NERA Special Consultant Dr. Richard Rapp challenges the notion that a conventional application of the basic principles of antitrust should be relied upon to assess mergers that raise competitive concerns regarding the level and pace of research and development (R&D). He argues that this approach -- which is called "innovation market analysis" -- is not grounded in economic theory. Moreover, due to a lack of empirical evidence demonstrating the link between the rate of innovation and the number of firms undertaking R&D projects, an R&D race to market is substantially different from the nature of competition in conventional markets for goods and services. As a consequence, continued application of the innovation market concept to R&D mergers is neither good economics, nor good public policy.
