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Speaking of Competition and Innovation…

Last night’s State of the Union Address focused a great deal on the important role innovation will play in America’s future economic competitiveness. One passage, in particular, got our attention:

“The first step in winning the future is encouraging American innovation. None of us can predict with certainty what the next big industry will be or where the new jobs will come from. Thirty years ago, we couldn’t know that something called the Internet would lead to an economic revolution. What we can do, what America does better than anyone else, is spark the creativity and imagination of our people. We’re the nation that put cars in driveways and computers in offices, the nation of Edison and the Wright brothers, of Google and Facebook. In America, innovation doesn’t just change our lives. It is how we make our living.”

No doubt pundits and policymakers will continue to debate what kind of role government should play in encouraging innovation. As they do, we hope one of the ways government can and must play a role won’t be overlooked: That is, through vigorous enforcement of our nation’s antitrust laws to protect the competitive space in our economy where new, innovative companies emerge.

In today’s global economy, where more and more transactions take place online and search engines increasingly serve as the gateway to the Internet, it’s even more important that our antitrust regulators be vigilant. We need look no further than Google’s proposed acquisition of ITA Software for an example of why. According to two recent editorials:

“Regulators must consider that if Google extends its dominance to the business of steering online customers to airlines and travel agencies, it would be in a position to charge more for this service. Without strong competitors to keep it in check, it might offer preferential placement to some airlines or agencies for a fee, or not list offers from companies that didn’t pay up. This could lead to higher costs for agencies, airlines and passengers.” The New York Times editorial, December 20, 2010

“Justice should not confine its review but should also consider the implications of allowing an already formidable Internet power to continue to expand its reach and consolidate its grip over a range of Internet commerce…Regulators must review the deal closely to ensure that Google’s vast power and reach do not unfairly hinder others’ ability to compete or deprive consumers of innovations not yet imagined.Washington Post editorial, January 2, 2011

Indeed, maintaining our innovation leadership will require that U.S. markets remain places where competition thrives – where new ideas are constantly fueling change in the marketplace and where new entrants are constantly challenging existing players to better serve consumers’ needs.

Last night’s speech should hearten our antitrust regulators and strengthen their resolve. For only vigorous competition, particularly online, promoted in part through strong antitrust enforcement will enable the next innovative, young American companies to grow into tomorrow’s Google and Facebook.