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This thesis looks at the various activities of competition authorities, such as the United Kingdom's Office of Fair Trading or the US Federal Trade Commission, and shows examples of how a tough, competition-promoting stance can boost innovation. Each chapter considers one of the three main branches of competition policy: mergers, agreements between competitors and the conduct of dominant firms. Chapter 2 shows how a government can foster innovation by tightening merger restrictions. A detailed model of innovation is used to show how merger policy affects market structure over the life-cycle of an industry. We show that mergers are only possible in later periods, once incumbent firms have established a technological lead over potential entrants. This means that the expectation of future rents from a relaxed merger policy encourages entry in the early stages. This can reduce R&D in the early stages and, as latter R&D builds on initial discoveries, limit innovation at the end of the life-cycle. We show that, in large markets, a government that aims to promote innovation should ban mergers when early innovation is sufficiently important for later research. A ban is also the optimal policy when a government aims to maximize welfare. In Chapter 3 we look at the effects of R&D cooperation among competing firms on technology choice. We demonstrate how firms in a duopoly can ensure that each adopts different technologies by agreeing, prior to conducting R&D, to share the results of their research. This has the effects of reducing product substitutability and thereby softening competition and increasing profits. We show that this can reduce innovation, consumer welfare and total welfare. The mo~~l also demonstrates how, once technology choice is taken into account, spillovers can be harmful even when R&D and output decisions are made simultaneously. Thus, unlike the rest of the literature, this result does not depend on the existence of the strategic motive to (over-)invest. In Chapter 4, we look at a systems market and show how an incumbent monopoly supplier of a primary product can protect its position through the technological tying of complementary goods. The key feature is that the production of complementary goods allows rivals to build up an absorptive capacity and thus benefits from spillovers from the incumbent. This in tum helps them challenge the incumbent in an R&D race to produce a superior version of the primary product. Tying reduces the aggregate rate of innovation and a competition authority that seeks to promote innovation should therefore ban it. Unlike other models in the literature, we do not drop the Chicago-School assumption that the complementary market is perfectly competitive.

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