If traffic and number of comments are any indication, this one from Geoff on the antitrust analysis of the Whole Foods/ Wild Oats merger certainly attracted the most attention.

Its been a fun year of of blogging.  Thanks to all of the TOTM bloggers, guests, commenters, and readers for making it so interesting!  Happy New Year!  See you in 2008.

Danny Sokol has collected picks from antitrust specialists around the globe. There were plenty of excellent articles and books to pick from but I ultimately selected this article from Keith Hylton and Fei Deng and this book on the Microsoft Case from Bill Page and John Lopatka. You can see the rest of the picks here.

While I limited myself to selecting a single article and a single book for the purposes of the Professor Sokol’s list, I thought I’d post the contents of the rough “Top Ten” list I sketched out. As a disclaimer, I’m probably am missing a few really good ones I read earlier in the year and didn’t put any effort into making an exhaustive list of antitrust scholarship for the year. Plus, I might have also misclassified the timing on some of these. Feel free to add your own in the comments, but here are some “articles” (broadly construed to include government reports, etc.) which would appear somewhere in my Top Ten (or Twenty?) List:

• William E. Kovacic, The Intellectual DNA of Modern U.S. Competition Law for Dominant Firm Conduct: The Chicago/Harvard Double Helix, 2007 Columbia Bus. L. Rev. 1
• Jonathan B. Baker & Carl Shapiro, Reinvigorating Horizontal Merger Enforcement (forthcoming Oxford University Press).
• The AMC Report & Recommendations
• Louis Kaplow & Carl Shapiro, Antitrust (Chapter 15 in Handbook of Law and Economics)
• Dennis Carlton & Randy Picker, Antitrust & Regulation (NBER working paper)
• Benjamin Klein and Andres V. Lerner, The Expanded Economics of Free-Riding: How Exclusive Dealing Prevents Free-Riding and Creates Undivided Loyalty, 74 (2) Antitrust L. J. 473 (2007).
• David S. Evans & Richard Schmalansee, The Industrial Organization of Markets with Two-Sided Platforms, 3(2) Competition Policy International 151 (Autumn 2007).
• Thomas A. Lambert, Weyerhaueser and the Search for Antitrust’s Holy Grail, 2006-2007 Cato Supreme Court Review 277 (2007).
• Bruce Owen, Su Sun, & Wentong Zheng, China’s Competition Policy Reforms: The Antimonopoly Law and Beyond (working paper).

Much discussion of corporate governance in the last few years has centered on reforms advocated by ISS and CII and indices of good corporate governance practice created and maintained by such groups. A new study by Roberta Romano, Sanjai Baghat, and Brian J. Bolton, however, concludes that there is “no consistent relation between governance indices and measures of corporate performance.” The authors continue,

[T]here is no one “best” measure of corporate governance: the most effective governance institution appears to depend on context, and on firms’ specific circumstances. It would therefore be difficult for an index, or any one variable, to capture critical nuances for making informed decisions. As a consequence, we conclude that governance indices are highly imperfect instruments for determining how to vote corporate proxies, let alone for portfolio investment decisions, and that investors and policymakers should exercise caution in attempting to draw inferences regarding a firm’s quality or future stock market performance from its ranking on any particular corporate governance measure. Most important, the implication of our analysis is that corporate governance is an area where a regulatory regime of ample flexible variation across firms that eschews governance mandates is particularly desirable, because there is considerable variation in the relation between the indices and measures of corporate performance.

The paper is entitled The Promise and Peril of Corporate Governance Indices and the full text is available on SSRN.

The December 2007 of the Antitrust Source is now available online and features a symposium on the recent Supreme Court activity along with several interesting articles, interviews, book reviews, and my favorite regular feature — the Working Papers and Recent Scholarship review by Bill Page and John Woodbury (which this month features scholarship by George Priest and FTC economist Malcolm Coate).

According to a news story from Reuters, a recent Tufts University study (available here) says that “if nothing is done to combat global warming,” then by the year 2100, “two of Florida’s nuclear power plants, three of its prisons and 1,362 hotels, motels and inns will be under water” because of rising sea levels. This is a rather dubious proposition since all of those assets would, I assume, outlive their useful lives long before they get submerged, and no one would rebuild in an area soon to be underwater. Still, let’s leave aside such objections. The study tells us that rising sea levels could cost Florida $345 billion a year and goes on to state that “the sort of mitigation efforts needed to restrict sea level rises to 7 inches or less would cost a U.S. state like Florida between 1 percent and 2 percent of GDP.” Hence, “doing something may seem expensive, but doing nothing will be more expensive.”

Steven Landsburg has written that “the antidote to naïve environmentalism is economics,” and I think that dictum applies here. According to this report from the Commerce Department’s Bureau of Economic Analysis, the GDP of Florida in 2006 (in chained 2000 dollars) was about $610 billion. One percent of that figure is $6.1 billion. The authors of the study thus argue that it’s a bargain to spend $6.1 billion to avoid a cost of $345 billion—which it would be, if we were talking about spending $6.1 billion today to avoid spending $345 billion today. The question, however, is whether we should spend $6.1 billion today to avoid spending $345 billion ninety-three years from now in 2100.

The Tufts study purports to take account of inflation, so we need be concerned only with the pure time-value of money and a risk premium. For the former, let’s say 1.7%, which is a commonly used estimate. The latter is harder to calculate, but I venture to say that predictions of costs almost a century in the future are at least as risky as small-cap stocks, and Ibbotson Associates has calculated the historical risk premium on such stocks to be 13.4%. So what happens if we discount $345 billion in 2100 back to present value using a 15.1% discount rate? Answer: that $345 billion becomes a mere $720,799. In other words, we’re being told that it’s bargain to spend $6.1 billion today to avoid a cost with present value of well under a million dollars. I think not.

Courtesy of Lynne Kiesling who supplies such insights regularly over at Knowledge Problem.  It’s about retail choice in electricity, but the general principles apply more broadly.  The whole thing is worth reading carefully:

There are, though, several ways that free choice and the removal of entry barriers into retail markets generates better outcomes than regulated monopoly service. When free choice allows consumers to choose among dynamic pricing options, they can face price signals and use technology to reduce their peak electricity use, leading to lower wholesale electricity prices and a reduced need to build costly infrastructure to meet peaks that just sits idle the rest of the time. 

Choice also encourages market entrants to bring differentiated products to market, to gain market share by appealing to different dimensions of consumer preferences and to reduce the extent of direct price-based competition. Product differentiation (and its associated price discrimination) benefits both consumers and producers (and thus creates surplus, or welfare, or value) in all cases except for some very special conditions. The connection between rivalry and product differentiation and economic value creation is one of the most unambiguous aspects of freedom of entry into retail markets. 

In France, it has been ruled that Amazon can no longer offer free shipping on book purchases. Don’t you just love it when competition policy protects certain competitors instead of actual competition? The protected competitors here are “vulnerable small bookshops.” Last I checked, the essence of competition is that “vulnerable” or inefficient competitors are supposed to be likely to go out of business. That’s the whole idea of promoting efficiency, innovation, economic growth, and enhanced welfare. The reason they’re vulnerable in the first place is that consumers in the market reveal that they more highly value the product characteristic bundle of other alternatives.

Personally, I have a love/hate relationship with this policy. I hate the “backwards” economics it promotes, but I love the fact that I get to make fun of it on TOTM. Death to free shipping, free samples, free coffee, loss-leaders, and, while we’re at it, Wal-mart rolled-back prices too!

See here.

Craig Newmark highlights this offer at Amazon allowing consumers who purchase an HD-DVD player up to 10 free DVDs. Newmark cites the DVD offer as an example of upfront competition resolving standard-based coordination problems in the presence of network externalities. Of course, Blu-ray also has a free DVD offer for those purchasing a Blu-ray machine this holiday season. These are excellent examples of the significant consumer benefits that arise from competition for the field.

Recently, Frank Pasquale at Concurring Opinions wrote a blog post did a drive-by hit on FTC Chairman Majoras supporting her recusal from considering the Google/DoubleClick merger now pending before the FTC.  You really have to read the post to get the full effect of the innuendo and intimation–it’s masterfully subtle.  At the time I commented on his blog:

Ah, muckraking. A time-worn tradition. So, let me see if I get this straight. Majoras is incapable of acting scrupulously in assessing gouging claims because she has, in the past, advised oil companies (among hundreds of other companies). Nevermind the airtight arguments against price gouging by oil companies and the broad and vast company saying the same things as Majoras. And this tenuous, utterly-unsupported (and oh-so-carefully implicit) claim of bias thus supports calls for Majoras to recuse herself from involvement in a wholly-unrelated case, in a different industry entirely, because, something like, “she’s done it before; she’ll do it again!” I see. Yes, very compelling.

Now comes news, not reported by Frank, that the claims in the recusal motion are pretty far from the mark.  Majoras’ statement (and Kovacic’s statement in response to a similar motion) and the statement of the remaining members of the FTC supporting her are here.  The salient parts:

To fully explain why recusal is not required here, I first must correct some key factual errors contained in the Petition. The Petition states that “Petitioners learned on Monday, December 10, 2007 that Doubleclick, has retained the Washington law firm of Jones Day to represent the company before the Federal Trade Commission in the pending merger review.” (Petition, page 1 ¶ 3). . . . Jones Day does not represent DoubleClick before the FTC and, indeed, in dozens of meetings and submissions, has never appeared or even been mentioned.

More importantly, the Petition also incorrectly states that “The Spouse of the FTC Chairman, John M. Majoras, is currently an equity partner with the law firm Jones Day.” (Petition, page 2 ¶ 5). As of January 1, 2006, John Majoras converted from an equity to a non-equity status and became a fixed participation partner in Jones Day. I understand that as a fixed participation partner, his compensation will not be increased or affected by changes in the firm’s income. Further, all benefits my husband receives from Jones Day are the same as those earned by other similarly situated non-equity partners in the firm. Therefore, my husband does not have a financial interest in the firm’s income, and thus I do not have an imputed financial interest.

In 2004 and 2005, when my husband was still an equity partner, I assumed that I would have a financial interest in FTC matters in which Jones Day represented a party and recused myself in such matters, as petitioners note. (Petition, page 3 ¶ 8-12). After my husband relinquished his equity interest in the firm’s income, I began to consider participating in FTC matters in which Jones Day represented a party, in consultation with the FTC’s Ethics Official. FTC staff and I continue to actively monitor FTC filings and public appearances, as well as any public statements that we may see, to determine whether Jones Day is involved in FTC matters.

The final point helps to explain the petitioner’s oh-so-sinister assertion, duly quoted by Frank, that Majoras had recused herself from cases involving Jones Day before, but not this time . . . .

At any rate, I just thought I might keep the record straight for the blawgosphere.

Gail Heriot (Right Coast) and John Fund discuss the Feingold-Kyl amendment to the pending bill which would give federal judges a long-awaited payraise amidst concerns that pay levels were to low to attract and retain a high quality judiciary. The FK amendment, as explained by Fund, “would bar any federal judge from accepting more than $1,500 in food, lodging or other reimbursement for any travel event not sponsored by a government, and more than $5,000 in a year.” The FK amendment appears to be related to the “junk ethics” movement which raises its head from time to time to throw charges at institutions like the George Mason Law and Economics Center, FREE, and others.

These educational programs have been adequately defended here and elsewhere in the past. However, it is worth emphasizing a point that both Heriot and Fund recognize but the FK amendment’s supporters apparently fail to understand: it is not very likely that the FK amendment will result in fewer educational programs for judges in the medium to long run. It is true, as Heriot notes in particular, that one obvious implication of the FK amendment’s funding limitations is that private schools (especially smaller ones) will suffer and no longer be able to attract judges to these programs. While it is no solace for the disfavored private schools, the amendments produce the greatest benefits for smaller public schools that would not be likely to attract federal judges in the absence of these programs. My guess would be that the net effect of the amendment is trivial (again, not much solace to the disfavored private schools) as growth in the number of new programs and expansion of existing programs at public schools offset the reduction in competition from private schools. There appears a healthy demand for the services provided by these programs and no shortage of high quality public law schools with the resources to produce them. One should not be surprised by a subsequent increase in the number of new state programs as well as expansion of existing programs to satisfy demand. I wonder if that is what Feingold & Kyl had in mind?

*Disclosure: I have in the past received summer research money from the George Mason Law & Economics Center.

A story in the New York Times explains that in Germany booksellers are legally prohibited from discounting books below the price set by the publisher. It’s not clear from the story, but it thus seems that Germany has a legally-mandated system of minimum resale price maintenance. Not surprisingly, this favors small bookstores. “In the United States chain stores have largely run neighborhood bookshops out of business. Here in Germany, there are big and small bookstores seemingly on every block.” The Times story goes on to explain that a similar system in Switzerland has recently been abolished, and now Swiss booksellers are selling books into the German market, undercutting the German booksellers.

The Times story provides very few details, and so it’s difficult to draw conclusions about what’s really going on here. Does the publisher have complete freedom to set the resale price? If so, given that US booksellers haven’t found RPM to be in their interest, why would German booksellers be any different? Why not just set the RPM price so low that even discounters would be selling above the RPM price? Or does the German system somehow facilitate a publishing cartel?

One indication that this might be the case emerges in the Times article. “Last year 94,716 new titles were published in German. In the United States, with a population nearly four times bigger, there were 172,000 titles published in 2005.” Again, it’s hard to tell, but if the publishers are making monopoly profits on books, perhaps they’re competing some of those profits away by publishing more titles in an effort to capture a larger share of the market. Compare how the airlines, when still regulated, competed on quality.

By the way, one thing is clear: at least for popular books, prices are a lot higher in Germany than in the US. You can buy the English version of Harry Potter and the Deathly Hallows from Amazon in the U.S. for $19.24, but the German version from Amazon.de in Germany costs EUR 24.90, or about $35.81. Part of the disparity is due to the current weakness of the dollar, of course, but even if the dollar and euro were of equal value, the German version of the book would still cost about 20% more.

A trio of Federal Trade Commission economists (Christopher Taylor, Paul Zimmerman, & Nicholas Kreisle) have revisited Justine Hastings’ 2004 AER analysis of the ARCO/ Thrifty vertical merger in their paper, “Vertical Relationships and Competition in the Retail Gasoline Market: Comment.”  (HT: Danny Sokol).  Hastings’ analysis is viewed as particularly important because it is one of the few empirical results that suggests that vertical integration is associated with lower retail prices and that regulations restricting vertical integration might improve welfare.

The FTC economists  challenge both the underlying empirical results using a similar differences in differences methodology and also take a closer look at the welfare implications of Hastings’ theoretical model.  Their conclusion:

According to Hastings’ analysis of the W-L data, the ARCO/Thrifty acquisition increased prices at nearby competing stations by $0.05 per gallon, on average. Our analysis of the OPIS data provides a very different estimated price effect of this transaction, suggesting that if there was any price effect, it was an order of magnitude smaller. In a number of instances we cannot reject the hypothesis of no effect at standard levels of significance. While we used a different data set, we have found no reason that would explain this discrepancy. Regardless of which data set more accurately depicts the transaction’s actual impact on prices, our theoretical analysis reveals some difficulties in inferring welfare effects from price changes when consumers attach value to particular brands of gasoline.

This sort of merger retrospective work is very important for formulating competition policy and regulation that is well grounded in both theory and evidence.  As the FTC authors notes, however, their is still a significant shortage of this type of work.  For those interested in the state of evidence on vertical integration, Francine Lafontaine and Margaret Slade also recently published a survey on the topic in the Journal of Economic Literature (available here).

Harvard College decided this year not to offer a service option many of its customers want — early admission. When Harvard’s new policy was announced, the dean of admissions took care to emphasize, “We’re looking for all the company we can get.” Soon thereafter, Harvard got some company; Princeton adopted a similar policy, and a number of other elite Northeastern schools began planning to cut early admission.

I thought this looked fishy. (See here and here.) There was a consciously parallel service cut-back that would not seem to make sense if accomplished unilaterally. (Indeed, officials from a number of the schools admitted that unilateral action wouldn’t make sense.) That looks like an “agreement” under cases like Interstate Circuit. And if it’s an agreement, then it’s an agreement not to compete in providing a service demanded by customers. Smells like anticompetitive collusion.

Collusion, though, is tough to implement. If there are other suppliers of the good or service besides those who are parties to the agreement, they can respond to consumer demand, thereby usurping business from the colluders. Perhaps that’s what’s happening with college admissions. Since Harvard and Princeton announced their policies, applications are up 45% at the University of Chicago. Wow.

It’ll be interesting to see how Harvard and Princeton respond. If they stick to their policies of no early admissions, then we can infer that they’re truly trying to better their institutions by setting up optimal admissions procedures. If they go back to their early admissions ways, we might chalk this up to a failed attempt at collusion. Anyone wanna place bets?

Dave Hoffman aptly describes the contours of a lot of the blog debate over Brian Leiter’s citation rankings of law professors by specialty:

Objection: “But you didn’t measure X…”
Leiter: “True. Let a hundred flowers bloom, and do your own data collection!”

I’ve got to say, I’m not sure that I really understand any of the objections to Leiter’s provision of this service. I suspect my initial reaction to the rankings was not unlike many law profs — I perused the rankings to look for scholars in my primary field: antitrust.

Apparently, antitrust scholarship is not as heavily cited as other areas in the business law classification with which antitrust is grouped (corporations, securities, commercial law, and bankruptcy). Interestingly, but perhaps not surprisingly given the breadth of the category, there are not many antitrust types that make the list. But there are a few. A quick look at the rankings in business law and law and economics yields the following folks that I recognize as antitrust scholars (even if it is not their primary field):

1. Richard Epstein (University of Chicago), 3390 citations
2. Mark Lemley (Stanford University): 2110 citations, age 41.
3. William Landes (University of Chicago): 1550 citations, age 68
4. Herbert Hovenkamp (University of Iowa), 1450 citations
5. Louis Kaplow (Harvard University): 1370 citations, age 51.
6. George Priest (Yale University): 870 citations, age 60.

I’m probably missing a few.

Categorizing these folks is obviously a very difficult task. Each of these six has published extensively in a number of other areas (IP, tax, law and economics, etc.) as well as made significant contributions to the antitrust literature. Still, my own sense (based mostly on casual empiricism) is that Professor Hovenkamp should be categorized as an antitrust person as I suspect an overwhelming majority of his citations are in antitrust. This change would make Hovenkamp #3 in Business Law. George Priest (#10 on the L&E list) is another candidate for an “antitrust” representative in the Business Law category. But this is a much closer call than Hovenkamp given Priest’s wide ranging publications across L&E generally and its pretty difficult to quarrel with the L&E category classification.

Besides — if I did have a serious quarrel — I guess I could just make my own antitrust ranking! I don’t. But I’ve decided that I’ll work on an antitrust-specific ranking since I’m curious as to what the top 10-20 in antitrust would look like. I’ve assigned an RA to work on tracking down some citation data and will post them along when we’ve got results. Feel free to email me (or comment) if you have thoughts on what a useful set of antitrust scholarship rankings would look like.