CHAPTER 5
pharmaceutical companies to attempt to restrict sales in low-price markets to the detriment of patients. Crescenzi, Rodríguez-Pose, and Storper (2007) estimate a so-called knowledge production function, which compares the number of patents registered to R&D investments in Europe (and a number of other factors at the regional level) with that in the United States. An insight from their analysis is that in the United States, knowledge production is more concentrated at the regional level, and there are fewer spillovers to other regions. In the European Union, R&D produced in one region helps generate patents in regions as far as several hundred kilometers away. This pattern may weaken incentives to create regional centers of excellence large enough to attract global leaders, risking the duplication of R&D across regions in Europe. In a nutshell, Europe’s most successful innovating economies are not big enough to allow innovators to grow to global leadership. A particularly prominent example for European fragmentation in innovation policy is the absence of a single Europe-wide patent. Leading European countries cannot agree on which languages to register the patent in. This is a case where overcoming national pride and prerogatives will be critical to create functioning Europe-wide innovation clusters. It is not just barriers to the single market resulting from national regulations that may reduce incentives for innovation-based growth sectors to develop. EU policy may have a role too, important in competition policy and procurement. Mowery (2011) discusses the role of competition policy and IPR protection in the evolution of R&D in the United States. During the postwar years, antitrust legislation prevented established U.S. companies from acquiring new technologies through mergers and acquisitions, thus promoting the birth of small innovative companies in new technologies such as semiconductors and electronics. After 1980, U.S. policy became considerably more patent-friendly. With the Bayh-Dole Act, the United States tightened protection of IPR, leading to an explosion in patents and collaboration among firms to benefit from technology diffusion. The role of the Bayh-Dole Act in promoting business-relevant research by universities—and the greater role of patent revenues for universities—has led Denmark and Japan to emulate its provisions. There are, however, critics of tight IPR regimes—regimes that could lead to strategic use of patents to prevent new entry, with little value created in the process. Tilford (2008) discusses the European Commission’s interpretation of its competition policy mandate with respect to network industries such as ICT, noting that an overly stringent interpretation of consumer risk from dominant market power may fall short. In industries where benefits to consumers may increase with the number of consumers, market dominance may not harm consumer interests. At the same time, companies anticipating antitrust action may hold back from innovation. The design of competition and IPR policies is an important element of a Europe-wide National Innovation System, though Mowery (2009) emphasizes that successful U.S. policies may not bring the same result in places with a different tradition of university-business collaboration. Finally, the United States’ success in innovation-based growth sectors owes a good amount to an integrated national procurement policy, particularly in the military and defense sector. Access to early users willing to take up and co-develop innovations is critical for new firms entering new sectors. One early customer
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