The Tilburg Law and Economics Center has a call for research proposals out in the amount of EUR 15,000. Proposals are due November 20th. Details here.

TOTM is never above a little bit of self promotion.  In that spirit, I’m very pleased to announce that we’ve made #64 on Brian Gongol’s rankings of business and economics blogs.  Aaron Schiff, author of an excellent new (at least to me) economics blog called 26econ.com, also has a new set of rankings for economics blogs which is available here.  TOTM comes in at #52 on Schiff’s rankings.  On top of that, TOTM also made Bootstrappers list of the “100 .edu Sites That Every Entrepreneur Should Read.”  I didn’t really know we were a .edu site, but I don’t let those sort of details bother me.  It’s just nice to know somebody is reading.  Thank you to our readers on behalf of everybody here at TOTM.

Finally, Schiff also has up some posts (and data) that might interest TOTM readers on voluntary pricing (a la Radiohead) in the music industry.  Go check it out.

The New York Times isn’t the only one calling for the FTC to go after Intel for its purportedly exclusionary discounting. The reliably interventionist American Antitrust Institute concurs. In a recent letter to the FTC, it wrote:

Based on allegations by AMD [Advanced Micro Devices] in a private U.S. case and on what we have been able to learn about the [European Commission's] complaint (the details of which are not yet public), not to mention a settlement in Japan and an ongoing investigation in Korea, there seems to be substantial reason to worry about Intel’s rebate policies, in particular, which appear to be fashioned for the purpose of keeping Original Equipment Manufacturers [i.e., computer makers] from switching orders to a chip that, on the merits, they may prefer to purchase from AMD. The U.S. government — especially the FTC — should reclaim its traditional role as the leading antitrust enforcer, especially when it is two U.S. corporations that are involved and the rest of the industrialized world is so concerned.

Let’s unpack this. It seems AAI is saying that the FTC should pursue action against Intel because (a) one of Intel’s competitors sued it under the antitrust laws, and (b) several foreign antitrust authorities have gone after Intel’s rebate policies. AAI apparently assumes that, since others have complained, Intel must have done something wrong in offering its rebates (which are, of course, retroactive price cuts). Or perhaps the AAI subscribes to the view — recently challenged by Josh — that more antitrust intervention equates to better antitrust intervention. Or perhaps both. AAI’s not real clear on why Intel’s rebates are anticompetitive.

Its recent working paper on the Intel matter doesn’t clarify much. In that paper, AAI Senior Fellow Norman Hawker contends that similarities between Intel and Microsoft in terms of market position and conduct establish that Intel’s rebates have harmed competition and injured consumers (just as Microsoft’s conduct purportedly did). Hawker explains:

[1] Intel dominates the PC chip market almost to the same degree that Microsoft dominates the PC operating system (OS) market (many refer to the two companies collectively as “Wintel”). [2] As in the Microsoft case, Intel’s aggressive marketing tactics prevented OEMs from offering rival products to consumers. [3] And like Microsoft, Intel has engaged in this conduct to maintain its existing monopoly. [4] Microsoft’s conduct served as the basis for two antitrust actions by the United States Department of Justice. (It should also be noted that the EU’s Court of First Instance has upheld the European Commission’s decision that Microsoft abused its dominant position by refusing to supply competitors with information needed for interoperability of their products and by tying the Windows Media Player to the Windows OS.) [5] These parallels between Microsoft and Intel suggest that Intel’s anticompetitive practices harm consumers, including American consumers, by denying them access to innovative products at lower prices from rivals.

So let me get this straight: [1] Both Microsoft and Intel are the biggest players in the markets in which they participate. [2] Both Microsoft and Intel have acted aggressively to get their customers to buy their products. [3] Both Microsoft and Intel have undertaken these aggressive efforts to sell their wares in order to avoid losing business to rivals. [4] Microsoft was sued by U.S. and EU regulators. [5] Ergo, “Intel’s anticompetitive practices harm consumers, including American consumers, by denying them access to innovative products at lower prices from rivals.”

This, my friends, is what we call a non-sequitur.

Just because Microsoft and Intel are both successful and aggressive does not mean that Intel’s “aggressive marketing tactics” — price cuts given to loyal computer manufacturers and passed on to PC buyers — bear any resemblance to Microsoft’s challenged behavior. And if they don’t, the similarities Hawker cites are just irrelevant. Lawyers are familiar with the notion of a distinction without a difference. Well, this the flip-side: similarities without significance. Moreover, a great many of the practices for which Microsoft was sued (e.g., the company’s decision to include in its operating system a media player — something practically all customers want) did not “harm consumers,” the claims of protectionist European regulators notwithstanding. Thus, AAI’s argument by analogy fails.

More importantly, AAI’s position is inconsistent with both theory and evidence. First, theory. AAI’s (and AMD’s) claim is that Intel’s discounts and rebates preclude better, cheaper AMD products from making their way to market. In AAI’s words, Intel’s loyalty discounts “harm consumers, including American consumers, by denying them the access to innovative products at lower prices from rivals.” The claim here is that AMD is a more efficient producer than Intel but is unable to persuade OEMs to use its processors because doing so would cause them to lose out on Intel’s discounts. But if AMD is truly a more efficient producer than Intel, then it ought to be able to match any Intel discount, as long as Intel is still pricing above its own cost. Put simply, an above-cost discount — even one that’s offered in exchange for loyalty — can always be matched by an equally efficient rival. Given the lack of any serious evidence of predation (below-cost pricing) on Intel’s part, AMD ought to be able to compete with Intel’s discounts by lowering its own prices.

And what about the actual evidence on consumer welfare? It would suggest that price competition is vigorous in the market for processors and that Intel’s discounts — far from monopolizing the market and leading to higher prices — are benefiting consumers. Consider, for example, this graph showing price changes on Intel’s Quad Processors. (The graph shows a steep decline during a period of purported monopolization.) How about this one showing the price trend on AMD Athlon 64 Processors (yet another steep price decline). Look here to see some combined AMD / Intel price data (again, downward price trends). And note that, by AMD’s own account (see paragraphs 33 and 34 of its complaint), Intel’s allegedly exclusionary discounting is accompanied by increasing operating margins — an observation that’s inconsistent with any claim that Intel is in the first stage of a predatory pricing scheme. I’m sorry — can you remind me how consumers are being harmed here?

Now obviously this is not a rigorous econometric analysis. It could be that prices would have fallen even faster absent Intel’s loyalty rebates. But in light of these downward trends in prices, the burden would seem to rest on AMD, AAI, and the foreign regulators to point to something solid — empirical evidence, a credible theory about how efficient rivals could be excluded, … something more than some minor similarities between Microsoft and Intel — that would justify government intervention into a discounting program.

The FTC is quite properly staying its hand on this one.

(HT: Danny Sokol)

This time from Paste Magazine (HT: Peter Schwartz via Wired Blog Magazine), and motivated by the Radiohead Experiment, and with an interesting twist:

Subscribers who choose to pay more than the normal $19.95 asking price will have their names printed in an upcoming issue of the magazine, but the entire year-long subscription can in fact be had for $1, as I just confirmed.

Both Paste and Radiohead appear to be making these moves to broaden their consumer base (and as Geoff has pointed out, getting access to valuable customer data), strategies that are at least related to strategies commonly observed from multi-product firms, rather than some more permanent attempts to incorporate voluntary pricing into the business model we’ve seen (e.g., restaurants).  Aaron Schiff has some nice posts up looking at some voluntary pricing download data from a website called Jamendo which makes the data publicly available (the minimum donation is apparently $5). Schiff reports that the average donation is a (surprisingly high in my book and much higher than the reported estimates of Radiohead’s donations) $14.55 and the data are available on his site.

I just wandered down to the local Panera Bread for lunch and picked up someone’s discarded copy of today’s New York Times. One of today’s editorials, F.T.C. Goes AWOL, claims that the Federal Trade Commission “clearly shares the ’starve the regulators and coddle industry’ philosophy that has driven the Bush administration for seven years.” The evidence? The FTC’s refusal to open a formal investigation into Intel’s loyalty discounts, which are offered to computer makers that minimize the use of processors made by Intel’s rivals.

In the discarded print edition I found at Panera, the editorial complains that “The United States Fair Trade Commission is still holding back from opening a formal inquiry into the company’s practices.” Of course, the United States doesn’t have a “Fair” Trade Commission. Instead, we have a “Federal” Trade Commission. A Fair Trade Commission might well focus its efforts on protecting small competitors, thus restricting aggressive competition by big companies so that little companies can stay in the game. Our Federal Trade Commission, by contrast, keeps its eye on consumers. Given that the complained of behavior here — discounting — offers an immediate benefit to consumers, our Federal Trade Commission is reluctant to intervene. That’s how it should be.

The New York Times worries that big bad Intel could use its discounts to “lock[] out smaller rivals that may have better products with new features or lower prices” — in other words, that Intel’s discounts could foreclose sales opportunities for more efficient rivals. But, assuming the discounts result in prices that exceed Intel’s costs, they could not do so. Any rival that’s as efficient as Intel could match the company’s non-predatory (i.e., above-cost) discounts. Thus, the only reason to stop Intel from lowering its prices in exchange for loyalty would be to protect less efficient rivals who, because of their higher prices and/or inferior quality, could not match Intel’s price cuts. A Fair Trade Commission might take that tack. A consumer-focused Federal Trade Commission would not.

(Note: When I checked the New York Times’ online edition a few minutes ago, the text had been corrected to read “Federal” Trade Commission.)

In the process of reading the number of informative (and at least one funny one) posts around the blogosphere on the AALS job market and job talks, I ran into this piece of advice from Dan Solove at Coop:

Choose a topic that many people on the faculty can talk about. The most important part of the job talk is the Q&A, where the faculty gets to see how well you think on your feet and respond to difficult questioning. Unfortunately, some job talks are doomed because they are on esoteric topics that hardly any of the faculty can discuss. If the faculty can’t debate you or engage with your topic, it is hard to have the kind of vigorous and interesting Q&A that is needed to show off your response skills. You need to leave the faculty with something it can discuss with you.

I generally agree with Dan on this point and the other advice he offers in his post. But what if you are somebody whose skill set includes quantitative analysis or formal modeling? It may prove quite difficult to present your empirical or theoretical model in a manner which is accessible to the entire faculty while remaining faithful to the content of your analysis. While this problem does not affect everybody, the number of these folks are increasing. For some casual empiricism on this point, one need only check out the number of economics or finance Ph.D.’s on law faculties around the country. Besides, there is no good reason why economists and empiricists should be left out of the job talk advice circuit.

As I see it, techies are left with the following choice: (1) choose a topic that does not reflect their skills but will appeal to a broader audience, or (2) choose a topic that does reflect those skills while doing your best to simultaneously keep the interest of those without the quantitative skills necessary to understand the nuances of the paper while demonstrating your expertise to those on the faculty that do. (1) seems useless and counterproductive to me. You are what you are at this point. Might as well do what you do best. If you’re an econometrician, statistician, or economist, there’s no point in hiding it. After all, you presumably got the job talk because the law school is interested in your skill set. So, below the fold I offer some advice on strategies for (2) (though some of the advice holds equally for non-technical talks).

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From the Economic Times:

The European Union’s antitrust agency is becoming more influential just as its US counterparts have grown more cautious and inactive, experts say. The European Commission’s recent success in forcing Microsoft to carry out antitrust sanctions underscores the differences, and academic researchers say the US is also hanging back in merger challenges. That makes Brussels, more than Washington, the place where companies must go to get their deal through and where companies must ready themselves against possible antitrust action. It also means competition agencies around the world look to Brussels.

“Influential” v. “cautious” and “inactive.” I get it. The implication is that EU antitrust enforcement is good and US enforcement is bad. The proof? One is allegedly more interventionist than the other. As a general matter, I do not find “more is better” arguments (see, e.g., here) causally linking agency activity to the quality of antitrust policy to be very persuasive. All of these claims should be taken with a grain of salt or two. It is one thing to make observations about trends in public antitrust enforcement over time. This exercise can be quite useful for addressing a number of questions or motivating a discussion of various issues. For example, the news item excerpted above cites to Baker & Shapiro’s recent article on merger enforcement which provides some evidence that federal merger enforcement is down (largely at the DOJ) and that private practitioners have noticed. Baker & Shapiro use this empirical observation as a jumping off point to discuss the structural presumption, burdens of production and persuasion, and to offer a critique of some recent decisions which (in their view) too readily accept entry and expansion defenses.

All of this can be quite productive in terms of generating dialogue concerning potential improvements in antitrust policy. However, it is quite another thing to assert that such data are capable of establishing a causal link between enforcement activity level and the “quality” of antitrust enforcement and/or consumer welfare. I should be incredibly clear here: I do not read Baker & Shapiro to be claiming to have demonstrated such a link empirically (though it is clear from the article that they believe more enforcement would be a good thing) and am not making this point in response to their article. Rather, I am responding to appeals to evidence on activity levels alone to suggest that “more” or “less” enforcement would bring about positive changes for consumers. Maybe such a link would be useful if we were talking about dramatic changes in the rate of enforcement (say, abruptly plummeting to zero or increasing tenfold).

But one should be very cautious about making inferences about consumer welfare from small changes in aggregate enforcement data or anecdotal evidence from a handful of cases. I offer this word of caution in the spirit of the current season when these types of claims are quite popular with the politicians and journalists: while it may be true that the most active antitrust agency is the most influential for a number of reasons, there is simply no theoretical or empirical basis to suggest that the most active agency produces the greatest benefits for consumers.

The Harvard Law Record report on Daryl Levinson’s presentation on the entry-level market is must read material.  HT to Orin Kerr who pointed out the article and was amused by Levinson’s comment that practical legal experience is “is pretty nearly disqualifying.”  I agree that comment might well shock some prospective law profs out there, but here’s the exchange would most likely catch the attention of academics in other departments:

Q: What’s hardest: getting the entry-level job, getting the next job, or getting tenure?

A: Tenure is relatively easy – presumptively everyone gets it, and those who don’t are the exception, not the rule. In the schools with the strictest requirements, about one out of every four professors don’t get tenure.

I don’t know where he is getting the data from (if there are data) but a tenure rate of >75% is consistent with casual empiricism and anectodal evidence I’ve heard.

Larry Solum points to Fernando Teson and Jonathan Klick’s (both of FSU College of Law) Global Justice and Trade: A Puzzling Omission.  It is a thoughtful and provocative paper.  Teson and Klick motivate the paper as an attempt to address the failure of philosophers and human rights scholars not to advocate free trade as a way to improve the welfare of the poor.  But as this excerpt from the end of the abstract suggests, the paper is more ambitious than that:

It is surprising then that philosophers and human rights scholars do not advocate liberalizing trade as a way to improve the welfare of the poor as a class. While many scholars in these fields are silent with respect to the effect of free trade on the poor, some actually argue that liberalized trade is harmful for the poor, contrary to the claims of economists. In this article, we argue that any serious scholar concerned with the plight of the poor needs to address the theory and evidence regarding the effects of trade liberalization on economic growth, suggesting that the standard policy prescriptions of the philosophers and human rights scholars are, at best, of second order concern and, at worst, likely to be counterproductive in terms of improving the welfare of the poor.

Some preliminary reactions to the paper appear below the fold.

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Michael Kimmelman at the NY Times.  Luke Froeb beat me to the punch of this one and has already got a post up, but this is too good not to share.  The article is on book sales and book culture in Germany, the latter of which is:

 sustained by an age-old practice requiring all bookstores, including German online booksellers, to sell books at fixed prices. Save for old, used or damaged books, discounting in Germany is illegal. All books must cost the same whether they’re sold over the Internet or at Steinmetz, a shop in Offenbach that opened its doors in Goethe’s day, or at a Hugendubel or a Thalia, the two big  chains.

Ok, fair enough.  The Germans don’t have any sort of monopoly on anticompetitive legislation.  We’ve got a few great examples here in the States.  And apparently this debate over the German rule is sparked by the Swiss allowing discounting of German books.  But you don’t have to be an economist to correctly anticipate the effects of a “no discount” rule on prices, right?  Or maybe you do?  Here’s the award winning line from Kimmelman:

What results has helped small, quality publishers like Berenberg. But it has also — American consumers should take note — caused book prices to drop. Last year, on average, book prices fell 0.5 percent.

I’ll bet you it caused no such thing, Mr. Kimmelman…

I’ve been watching the news coverage of the San Diego fires this evening hoping for any bit of good news. It hasn’t come yet (a map of the San Diego fires, evacuation centers, and some photos is available here). I was born and raised in San Diego and many family members still live there. At least one family member and several friends have been evacuated. It appears that the total number of San Diegans displaced by the fires thus far has exceeded 500,000 (and does not include the other fires across southern California). My thoughts and prayers go out to all of those affected by the fires.

For those who are interested, donations can be made to the San Diego Red Cross here.

UPDATE: Professor Bainbridge adds links to Catholic Charities in Los Angeles and San Diego.

Todd Zywicki recommends Kurt Eichenwald’s The Informant, the fascinating story of the prosecution of the Archer Daniels Midland lysine cartel in the 1990s, and asks whether the famous DOJ videotapes and transcripts of cartel meetings are available online.  I’m not sure if they are online, but the DOJ does make the tapes and transcripts available free of charge (or at least used to) by mailing or faxing a request to the following address:

Freedom of Information Act Unit — Antitrust Division
Liberty Place Building, Suite 200
Department of Justice
Washington DC, 20530-0001
Phone: 202 514 – 2692
Fax: 202 616 – 4529

I’ve used these tapes as a teaching tool most years that I’ve taught antitrust (though unfortunately I had to leave them out last year) to motivate discussions of factors that work for and against the successful operation of a cartel, the incentive to deviate from cartel agreements, and the cartel’s need for means to detect and punish deviators.  The tape is fascinating to watch and a great tool for teaching about price fixing, how its accomplished, criminal antitrust enforcement, leniency programs, etc.  I believe the ABA has made various translations of the tapes and transcripts available as well, though I cant say I know exactly where to find them.

It looks like California consumers, unlike their counterparts in several other states, will be getting cash instead of coupons in their settlement against U.S. Tobacco in one of the many follow-on actions to Conwood Co. v. United States Tobacco.  The settlement looks to be in the range of $96 million with qualifying customers taking home anywhere between $195 and $585 depending on how many consumers are willing to sign a sworn statement that they purchased more than 30 cans of certain brands in the relevant time period.

In the original case, a federal jury in Kentucky deliberated for about four hours before finding that UST’s actions in distributing moist snuff tobacco violated Section 2 of the Sherman Act and awarded Conwood treble damages in the amount of $1.05 billion.  The decision was later affirmed by the Sixth Circuit.  It is not surprising that Conwood prevailed in the private litigation once the case got to the jury.  After all, UST’s conduct included some pretty distasteful stuff that was surely tortious, e.g. destroying rival’s product and display racks, misleading retailers, etc. 

For this reason, Conwood is most often talked about my antitrust commentators as a classic example of a “cheap exclusion case,” much like the textbook example of blowing up the rival’s factory.  But there are some problems with this characterization, not the least of which is that Section 2 still requires that plaintiffs demonstrate actual competitive harm and engage in some analysis on that issue.  Also, commentators frequently (following the Sixth Circuit’s example) ignore the fact that Conwood prevailed under a Section 2 theory that included not just the tortious conduct, but also presumptively pro-competitive conduct such as offering loyalty programs and category management services to retailers.  The Sixth Circuit never disaggregated lawful from unlawful conduct for the purposes of liability or damages analysis.

Unfortunately, some language in the Sixth Circuit decision also broadly condemns category management (when a manufacturer provides valuable input for shelf space allocation decisions) without any analysis.  This part of the decision, which ignores the potentially pro-competitive virtues of both category management and exclusive contracts is an excellent of example of the following tendency noted by Coase (1972):

“…if an economist finds something ­ a business practice of one sort or other–that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of ununderstandable practices tends to be very large, and the reliance on a monopoly explanation, frequent.”

Coase, of course, was talking about economists.  But I think the warning is equally applicable to antitrust lawyers and judges and especially appropriate in the retail context where these mistakes are made frequently.  While it is true that UST’s tortious conduct is indefensible, a monopoly explanation is unlikely for those acts.  Further, the real analytical error is that the antitrust law requires a showing that this conduct harms consumers even when the conduct is surely not “competition on the merits.”  The bigger mistake, in my view, is not about the tortious conduct.  It’s about the category management contracts — an arrangement that is incredibly pervasive in modern retail distribution.  The Sixth attaches a causal connection between the UST’s position as category manager and the tortious acts without any explanation, justification, or even attempt to evaluate the conduct within the well established frameworks for analyzing such arrangements in antitrust.  This does not bode well for category managers with significant market shares trying to figure out whether their category management arrangements might create Section 2 liability nightmares.

Further, the damages calculations at trial in the original Conwood case have been heavily criticized by many prominent scholars.  See, e.g. D.H. Kaye’s analysis here and here, a scathing amicus brief in support of a writ for certiorari from several leading economists attacking the damages estimates, and a lengthy critical discussion in Herbert Hovenkamp’s Antitrust Enterprise which makes Conwood the poster child of sorts of the case against private litigation.

My own critique of the Conwood decision which covers these and some other points, as well as a pro-competitive economic theory of category management, can be found in this draft article (currently under review at a journal). 

The DOJ Antitrust Division has a new website which provides consumers very useful information concerning the importance of competition in the real estate market, anticompetitive state laws which limit this competition, and documenting various anticompetitive practices.  Here’s commentary from Todd Zywicki and Luke Froeb.