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Academic commentary on law, business, economics and more
November 30, 2006
posted by Elizabeth Nowicki at 1:47 pm
Fox news reports today that the shareholder lawsuit regarding what can best be referred to as “the Hewlett Packard Fiasco†was amended yesterday to include claims of insider trading. It seems that at least eight HP executives, including incumbent CEO Mark Hurd, are alleged to have traded in HP securities in the two weeks prior to the announcement of Patricia Dunn’s spying/pretexting efforts.
It seems that this two week period was, according to the lawsuit, the busiest period of stock sales by HP execs. in five years. (It appears that most of the transactions involved were related to cashing out stock options.)
What is stunning to me is that HP is reported to have issued a statement saying that the lawsuit is baseless. Further, HP says that the lawsuit “represents a transparent effort to exploit issues related to HP’s recent investigation for personal gain at the expense of HP, its shareholders and its employees. HP will defend itself vigorously.â€
I am stunned that HP would have the chutzpah to issue a press release like that on such damning facts. If the facts are as alleged – in the two week period prior to revealing the pretexting fiasco, there was more HP stock activity by HP executives than in the past five years – and HP is offering no other rational explanation for the trading activity, I fail to see the sense in making a statement indicating that the eight trading executives engaged in transactions beyond scrutiny.
I am thinking back to the Martha Stewart case. I have never quite gotten over the district court opinion in that case, where the court dismissed the securities fraud case against Stewart for having proclaimed (in the face of damning evidence) that she was innocent of insider trading violations.
I imagine if I were the press person for HP, and I had an insider trading history that looked like this, I would either be quiet or be honest.
November 29, 2006
posted by Josh Wright at 6:32 pm
Steve Levitt is impressed with Barack Obama’s book The Audacity of Hope, and notes that though he does not agree with all of his political views, Obama may very well be a future president. I don’t know much about Obama,and haven’t read his book, but I was disappointed to see him jump aboard the Wal-Mart bashing train at a recent event (HT: Greg Mankiw) with this gem of economic logic:
“Wal-Mart is making a large profit and they don’t have foreign competition. What they are doing though is driving wages down significantly for not only workers at Wal-Mart, they’re also driving down wages for competitors.”
This analysis smacks of an assertion that Wal-Mart’s failure to pay higher wages is a function of a simple refusal to pay what they can afford. And that the wages indicate the presence of monopoly rents. Nonsense. Of course they can afford to pay more, just like I can afford to pay $100 for my morning coffee rather than the posted price or George Mason could choose to make me the highest paid professor in all of the land. I haven’t and neither has GMU, but the inferential leap to monopoly rents here is a long one and should be taken with extreme caution. The implication of this statement is that Wal-Mart is earning supra-competitive profits in the retail industry, and it could use these profits to pay out higher wages. Repeat with me: the retail industry is competitive, faces low economic barriers to entry (spare me the Stigler v. Bain debate for the moment), and has exhibited consistently low average profit margins over time.
Of course, if it were not, Wal-mart’s hypothetical (and dubious) strategy to earn monopoly rents through reducing labor costs would be easily undone by rival seizing a profitable entry opportunity to compete with Wal-Mart on price and increase wages! The other argument could be that Wal-Mart is refusing to increase prices and generate revenues which could be applied to increased wages. Nonsense again. This implies that Wal-Mart would be better off by increasing prices but refuses to do so, i.e. our daunting monopolist is not maximizing profits. And let me preempt Elizabeth’s question (see, e.g. the comments to this post on Wal-Mart’s drug plan) … No, this is not a claim about predatory pricing, i.e. low prices now associated with losses recouped by monopoly profits later. Rather, this is a claim that the monopolist’s profit-maximizing strategy is to offer low prices in order to not be able to afford higher wages.
Obama may be charismatic, and a great writer, and may well become the next POTUS, but if this quote represents his sense of economics (it may not, it is just one excerpt) and specifically, of competition and Wal-Mart, I’m not impressed.
See also my previous and related post responding to Barry Lynn’s unconvincing antitrust call to arms against Wal-Mart in July’s Harper’s Magazine.
posted by Bill Sjostrom at 2:13 pm
The current SSRN top tens for corporate, corporate governance, and securities law are after the jump. (more…)
November 28, 2006
posted by Josh Wright at 8:43 pm
Are available from Twombly and Weyerhauser.
HT: Antitrust Review.
UPDATE: Randy Picker reads the Twombly tea leaves and the court’s analogy to Form 9.
November 27, 2006
posted by Josh Wright at 2:10 pm
The Business Associations’ Blog is here.
posted by Josh Wright at 11:54 am
Dan Crane ( Antitrust Review, Cardozo) has graciously posted his testimony for Wednesday’s FTC/ DOJ Section 2 Hearings on Loyalty Discounts. Readers familiar with Crane’s scholarship on bundled discounts in the Chicago Law Review and Emory Law Journal will not be surprised that it is thorough, careful, mindful of the role that administrative costs should play in designing antitrust liability rules. At the end of the day, Professor Crane proposes a Brooke Group style-discount reallocation rule for bundled discounts, which he articulates as follows: “that the bundled discounts resulted in at least one product in the package being sold at less than cost, after reallocation of the discounts on the other products in the package to the predatory product.” Interested readers should go read Professor Crane’s testimony.
I am also looking forward to seeing TOTM co-blogger Thom’s remarks (who will also be testifying) on this subject, which has become a relatively hot antitrust issue after LePage’s. The panel lineup looks interesting, and also includes Joseph Kattan, David Sibley, Barry Nalebuff, Janusz Ordover, Willard Tom, and my colleague Tim Muris. I am particularly interested in the bundled discount testimony because it has substantial overlap with many of the issues raised in the exclusive dealing session which I participated in, and the relationship between the economics of exclusive dealing and various types of discount contracts.
November 21, 2006
posted by Bill Sjostrom at 8:34 am
Per the “Out of the Jungle” blog:
Maybe it just goes to illustrate what a babe in the woods I am, or
maybe it’s that the stuff I blog is not worth much… But evidently,
bloggers on the Paul Caron blog empire are requested to sign a
non-compete clause, promising that they will not blog anywhere else on
the same topic they do there. Wow!
I don’t know whether this is true or not, but it is consistent with the reception I got from the “blog empire” when Geoff and I launched this blog (at the time I was a contributing editor on Business Law Prof Blog and Contracts Prof Blog).
HT:Â Mike Whiteman
November 16, 2006
posted by Josh Wright at 11:07 pm
As most readers will know by now, Nobel Laureate Milton Friedman passed away earlier this morning. The WSJ tribute is worth reading for those unfamiliar with Friedman’s many contributions to economics and policy. Nobel Laureate Paul Samuelson’s comment is the closest I have seen to capturing the magnitude of Friedman’s influence:
“No one in the 20th century has had the ideological influence that Milton Friedman has had in moving the economic profession from Great Depression-era do-goodism towards a friendliness toward, and appreciation of, the free market. We’ve lost a giant in economics.”
On a personal note, Milton Friedman’s reach extended to my own dinner table as a teenager thanks to my father, who had studied some economics himself and was fond of pontificating on economic policy over dinner. I apparently have in common with my colleagues David Bernstein and Ilya Somin (and surely countless others) that our fathers introduced us to Friedman in one way or another. As a child who was mostly obsessed with sports, I now have greater appreciation for my conversational exposure to economics at a young age (thanks Dad). Decades later, some of our most recent conversations have involved Friedman’s work on school choice and the potential gains from unleashing the power of market forces on our school systems. While I never had the honor of meeting Milton Friedman, those hours of dinner conversation and my well-worn copy of Capitalism and Freedom will always have a special meaning for me.
The family has asked that in lieu of flowers or gifts, contributions be made in his honor to the Milton and Rose D. Friedman Foundation. Donations can be made online here.
UPDATE: Here are some links to tributes around blogs: Tyler Cowen, Alex Tabarrok, Austan Goolsbee, Gordon Smith, Steve Levitt.
posted by Josh Wright at 10:11 pm
Dennis Carlton and Randy Picker have posted Antitrust and Regulation on SSRN. It looks like a very interesting paper on the relationship between antitrust and regulation to control competition. Here’s the abstract:
More than a century ago, the federal government started controlling competition, first railroads through the Interstate Commerce Act and then the general economy under the Sherman Act. The Commerce Act assigned primary responsibility to the first great federal agency, the Interstate Commerce Commission, while the Sherman Act relied for its implementation on federal courts of general jurisdiction. Since that time, there has been an ongoing struggle to formulate the appropriate policy for controlling competition and to determine the right balance between antitrust and regulation for implementing that policy.
Regulation and antitrust are two competing mechanisms to control competition. The early history in which special courts were established and then abolished, and in which the FTC was created illustrate this point. The relative advantages and disadvantages of each mechanism became clearer over time. Regulation produced cross-subsidies and favors to special interests, but was able to specify prices and specific rules of how firms should deal with each other. Antitrust, especially when it became economically coherent within the past 30 years or so, showed itself to be reasonably good at promoting competition, avoiding the favoring of special interests, but not good at formulating specific rules for particular industries. The partial and full deregulation movement was a response to the recognition of the relative advantages of regulation and antitrust. This does not mean that no sector will be regulated, but rather that competition, constrained only by antitrust, will be used over more activities, even in regulated industries.
Aside from being viewed as substitutes, antitrust and regulation can also be viewed as complements in which the activities of an industry can be subject to both regulatory and antitrust scrutiny. In this way, the complementary use of regulation and antitrust can assign control of competition to courts and regulatory agencies based on their relative strengths, and in some settings, antitrust can act as a constraint on what regulators can do. The trends in network industries indicate that regulators, not antitrust courts, will bear the responsibility for formulating interconnection policies in partially deregulated industries, but antitrust will remain in the background as a club that firms can use if regulators allow incumbents to acquire market power either through merger or predatory acts. The history shows that at least for the United States, the increased use of the Sherman Act instead of regulation to control competition, and when necessary, the complementary use of the two, has brought benefits to consumers.
posted by Bill Sjostrom at 10:51 am
The current SSRN top tens for corporate, corporate governance, and securities law are after the jump. (more…)
November 15, 2006
posted by Bill Sjostrom at 7:39 pm
WaPo provided its two cents on option backdating in an editorial appearing yesterday (see here). Its solution is to rein in the use of stock options, perhaps through regulation, and instead go with restricted stock. The reason: “options are opaque” and therefore “invite abuse.” Well that’s certainly a convincing argument for stripping corporations of a widely used compensation tool, and I’m sure if we went with regulation, the government would get it just right as historically has been the case in the executive comp area (yeah, right).
November 14, 2006
posted by Josh Wright at 11:29 pm
Tyler picks the San Antonio Spurs to win the NBA title this year. No time like the present to get on the record with a few of my own.
1. NFL: Bears v. Chargers in the Superbowl. I’m going to go out on a limb (and against Tradesports) and pick San Diego over the Colts in the AFC … and to win the whole thing.
2. NBA: The Spurs look good in the West. I’m going to predict a Spurs v. Heat final and stick with my pick from a year ago: Heat in 6. Given Wade’s performance in the playoffs last year, I refuse to pick against him in a playoff series until they lose one again. My own version of the Jordan (Ok, Jordan-like) rules.
3. NCAA Basketball: Ok, its November … but Joe Lunardi has already got his picks up at ESPN, and I’m going to GMU’s home opener against Wichita State Saturday, so it is officially basketball season. There is good news and bad news for me in Lunardi’s picks. He’s got UCLA as a one seed, but also has Hofstra avenging its exclusion from the Tourney in GMU’s favor and taking the only spot from the CAA. Nonetheless, I’m sticking with the Patriots making a return trip to the dance (sorry Matt!), but I’m going to pick a relatively conservative Final Four: UNC, UCLA, Florida and Pittsburgh. The winner? UNC … but I’ll be sitting in the UCLA section. Go Bruins.
posted by Josh Wright at 5:51 pm
As promised, I am posting here my powerpoint slides for my testimony on exclusive dealing at the FTC/DOJ Section 2 Hearings, as well as the two papers upon which my analysis is based:
- Powerpoint slides: Wright Exclusive Dealing Testimony
- Benjamin Klein and Joshua D. Wright, The Economics of Slotting Contracts, forthcoming in JLE in 2007.
- Benjamin Klein and Joshua D. Wright, Antitrust Analysis of Category Management: Conwood v. U.S. Tobacco.
My testimony will focus on the antitrust analysis of exclusive shelf space arrangements and category management contracts, which delegate to the product manufacturer the performance function of shelf space allocation decsions, and is based on two papers co-authored with Benjamin Klein. All of these materials are also available on the very useful FTC/DOJ website, which also contains the papers, bios, and presentation materials for other exclusive dealing panelists as well as panelists from other sessions. Hopefully, I will be able to post some post-hearings thoughts here late tomorrow or Thursday.
November 13, 2006
posted by Josh Wright at 3:41 pm
Eugene Volokh has posted a series discussing his new article (forthcoming in Harvard L. Rev.) “Medical Self-Defense, Prohibited Experimental Therapies, and Payment for Organs,” which I point out because the article claims that bans on organ payments violate patients’ medical self-defense rights. As readers of TOTM know, organ markets are a topic of substantial interest around here. Eugene dedicates a separate post to refuting the oft-repeated mantra that the ban on compensation is necessary to prevent the wealthy from buying up all of the organs. I remain unconvinced by claims that organ markets will harm the poor for reasons addressed in greater detail in this post. Eugene’s article admirably contributes to a substantial literature refuting the claim that organ markets will make the poor worse off (see, e.g., Cohen, Epstein, Boudreaux, Becker links in this post).
While it is very difficult to say anything new about the benefits of organ markets — there are only so many ways of saying that supply curves slope upwards — the comments to Eugene’s posts and discussions of this issue elsewhere lead me to believe that there are a few points worthy of repetition with respect to the assertion that the wealthy will buy up all of the available organs at the expense of the poor.
The first is a simple one. The market price of kidneys would not depend only upon the willingness to pay of the rich. This is not how prices are formed. As Gary Becker put it in this post, “market forces rather than rich persons would determine the price of organs, in the same way that rich people do not presently set the price of maid services.”
The second point is a tired one, but one that bears repeating as often as necessary: the problems of organ shortages and poverty are different problems. There are a number of policies one might prefer as a method to reduce poverty. A ban on compensation for organs is not one of them. We might also agree that some form of state subsidy of organ transplant costs for the poor is a good idea. Again, this issue is distinct from whether the transactions should be allowed. The relevant policy inquiry with respect to poverty is whether lifting the ban on compensation for organs will make the poor better or worse off? Even assuming arguendo that the organs will come primarily from those living below the poverty line, the argument that a ban on kidney transactions will make the poor better off when we restrict their choice set necessarily assumes that these individualsare simply unable to economize the relative costs and benefits of the choice. As I have written previously:
I fail to understand how depriving those with low incomes of a choice they currently do not have shows a greater concern for the poor than giving them an option not previously in their choice set. This objection masks, and not very effectively, an assumption that the poor either cannot or will not economize on the potential costs and benefits in the language about justice.
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