Should we regulate innovation?

A few years ago we gave a presentation about innovation to high school children at Cedar House in Cape Town.

As the end of the talk - we opened up for questions.

One of the children asked something interesting, that as time has gone on - the answer that we would offer now has changed from what we said back then.

The question was:

"Can you ever have too much innovation?"

At the time, we said no. Innovation is the life blood of modern competitive economies and should be as deregulated as far as possible so that we enable progress.

But is it really so simple to hold this position to the extreme?

When successful innovation results in a monopoly of a market, should regulators then not step in to curb this concentration of power? If one player is so far ahead of the rest, for the sake of fairer competition - should further success not be capped?

We can point to countless examples of where concentration in a market has been painfully experienced by customers of that category. Just look at the airline industry...or social media.

Too much innovation is not beneficial for the common good, but unlike the blocking of mergers by competition tribunals, how would regulators moderate untethered creativity and success?

Too big to fail

Markets mechanisms don't work efficiently when one player becomes too big too fail. Whether this situation of concentration emerges as a result of mergers & acquisitions or organic innovation the resulting market stagnation over time is the same. In the South African context evidence suggests that the local market is highly concentrated despite efforts of the Competition Commission to prohibit this from happening.

Exclusionary conduct

Perhaps the use of the term 'innovation' as some kind of blanket term for activities simply aimed at 'serving customers with more value than anyone else' is misleading.

When a company's innovation activities result in technologies that create a situation which prohibits competition in the marketplace, then regulators should step in. A situation where one firm has a monopoly on data (even if the capturing of that data was through their own innovative means). for example. might be considered to be exclusionary conduct and therefore anticompetitive.

It's doubtful that this kind of situation is on the radar of the South African Competition Commission, but our suggestion then should be that there needs to be an expansion of the list of exclusionary conduct that takes into account data monopolisation and redresses this situation for the efficient functioning of the market.