Feasibility study on the microeconomic impact of enforcement of competition policies on innovation

While there is an extensive literature on the relationship between market competition and innovation at the aggregate level, there are far fewer case-specific accounts of this relationship, particularly on the effects of specific competition policy interventions on innovation. The objective of this study was to offer a detailed literature review, develop a methodological framework for ex post evaluating such impacts, collect data, and provide preliminary results on how innovation was affected by the 2012 consolidation of the HDD market (involving the Seagate/Samsung and Western Digital/HGST mergers). Following a Schumpeterian trichotomy, we evaluate the impact of this consolidation on three layers of innovation: research spending, patent activity, and the characteristics of newly marketed products. Our results show a heterogeneous response, with one of the acquiring firms, Seagate, displaying increased innovation on all three levels. This is consistent with an interpretation that, notwithstanding the increased concentration, the HDD market remains contestable, mainly from other storage technologies (as predicted by the European Commission in 2011). We found no impact on Western Digital’s R&D spending, or product characteristics, but an increase in their patent activity. The study provides detailed explanations for these results, together with important methodological contributions on how to use R&D, patent and product characteristics data to ex-post evaluate the impact of competition policy on innovation.