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Neelie Kroes, European Commissioner for Competition, addressed faculty, staff and students Oct. 31.

Neelie Kroes on innovation and monopoly

EU policymaker notes challenges to spurring economic growth

By Adrienne Murrill

11/2/2007 -

 One of the European Union’s top policymakers, Neelie Kroes, addressed faculty, staff and students Oct. 31 at the Kellogg School of Management, discussing Europe’s efforts to increase economic growth and innovation.

Kroes is the European Commissioner for Competition, responsible for the European Union’s regulatory and competitive policy. In this role, she was the primary European lead in the case that the EU won against Microsoft.

The lecture was well attended by an international audience that included faculty members from both Kellogg and Northwestern University’s Department of Economics. Kroes, who has been named among the world’s most powerful women by Forbes magazine, spoke about globalization’s effect on the EU’s 27 member countries, calling it “a fact of life.” She talked about the policies and strategies the EU is using to bridge the gap between research and innovation, to overcome cartels, and, in turn, increase competition and growth.

Along the way, Kroes cited Joseph Schumpeter’s theory of “creative destruction,” which postulates a relationship between monopoly firms and innovative entrepreneurs seeking to enter the market and compete through more efficient and agile means. Some have interpreted the theory as justifying temporary monopolies that then provide the incentive for entrepreneurs to engage in research and development.

However, Kroes rejected this theory as a basis for competition policy, pointing out that work done by Nobel Prize-winning economist Kenneth Arrow does not support the idea that monopoly will inspire greater innovation. She also said that empirical economic evidence on the relationship between market structure and research and development is mixed: it is not necessarily the case that there is more innovation in highly concentrated (monopolistic) market structures.

Kroes also discussed the European Union’s long-running Microsoft antitrust case, in which she was the primary European lead. In October, the company announced it would no longer appeal the 2004 EU ruling against it. While winning the case will affect the EU, it will also have consequences worldwide, including in the United States. “My goal is that the consumer can choose at the end of the day,” she said. “Ten years from now, do I want one product to choose from or the opportunity to compare and make my own decision?”

Kellogg School Dean Dipak C. Jain introduced Kroes, saying that he considers her a member of the Kellogg family. “One of the best occasions we get as administrators is when we have a distinguished person such as Neelie Kroes come to speak at Kellogg,” Jain said. In the past, she has met with many students who traveled to Europe for the Global Initiatives in Management program, he added.

Senior Associate Dean David Besanko called the presentation extremely thoughtful and said that it was a great opportunity for Kellogg students because the lecture addressed issues that arise in classes on microeconomics, technology management and competitive strategy.

“Commissioner Kroes offered provocative insights about how to go about striking the balance between preserving price competition and stimulating innovation in high technology markets,” he said. “It was a thrill to hear this discussion from someone who is at the frontlines of antitrust enforcement.”