2.1. Rapid Technological Change

Compared to the 1970s, the length of product and innovation cycles has been cut in half (Leker 2001). This has increased competitive pressure immensely: in order to make the investments on research and development profitable, large quantities of new products need to be sold fast on a global scale. Management consultants have termed this the “multi-domestic” strategy (Leontiades 1985). Another attempt to economise on R&D costs has been to share them with competitors (“strategic alliances”). These have been evaluated critically by a number of competition authorities. Drawing on the insights of transaction cost economics, many of them can be explained as an attempt to economise on an important cost component, in this case R&D (Voigt 1993 for an evaluation of strategic alliances from a competition policy point of view; Lopez 2001 for recent attempts of competition authorities to evaluate them as an attempt to monopolise).

The cutting in half of product and innovation cycles has far-reaching consequences for the competitive process: innovative leads cannot be conserved anymore. It is often highly unlikely that today’s dominant position that is due to superior technology will persist for long. The time dimension has thus increased in importance. To quote an often-cited example: innovation cycles in the chip industry are so short that once a firm has a certain lead, its competitors will not even try to imitate it on that cycle but immediately invest into the next generation in order to gain a lead there. It has been observed that this is closer to the notion of competition for the market than competition within the market. If relevant markets were narrowly defined, one would regularly find market shares of 100%, then. Shorter product cycles also mean that newcomers or incumbents from related markets have better chances to enter into these markets. The importance of these trends is amplified by the very rapid development of the communication and data processing industries.

In the past, product cycles were often characterised by an extended degeneration phase. At times, competitors knew each other and there was not much technological change. These are often good prerequisites for successful collusion. This has changed for two reasons: the degeneration phase tends to become ever shorter. If there is a degeneration phase of considerable length, competitors from low-cost countries will be attracted into the market. Chances for successful collusion have thus often become rather slim.