• Luke Froeb (and the WSJ) on learning about potentially anticompetitive mergers from false negatives
• The Onion does antitrust (its a bit old, but still quite funny)
• Rumors of Microsoft investigation in China pickup again …
• Antitrust Review links to the petition for rehearing en banc and motion to disqualify the Commission as the administrative law judge in Whole Foods
• More on Whole Foods from The Deal:

The purpose of Rosch setting the trial schedule would be to make sure the Whole Foods case proceeds at a rapid clip. But it’s not clear how much leeway the ALJ would have to adjust Rosch’s schedule or whether the judge would feel bound to abide by it anyway. Additionally, a final decision could bog down even if the ALJ sticks to Rosch’s timetable. Even though FTC rules ostensibly require the ALJ to file an opinion within a set time period, the judge can claim extension for extra time to complete writing, without seeking approval from the commission.  Meanwhile, a parallel proceeding regarding the Whole Foods case continues in federal appeals court. The FTC is waiting to hear whether it will be asked to file a reply to Whole Foods’ request for a rehearing by the entire circuit court. Whole Foods lawyers Tuesday asked the U.S. Court of Appeals for the District of Columbia Circuit to review the July 29 decision by a three-judge panel of the circuit court. Their ruling encouraged the FTC to jumpstart its in-house case. The FTC doesn’t automatically get to reply; the agency has to wait for an invitation from the appeals court. A request for a reply, however, would likely be evidence that the appeals court is seriously considering a rehearing, which the FTC would surely oppose.

Our friends at Antitrust Review point to the Petition for Rehearing En Banc in Whole Foods. As readers of the blog will know, Geoff and Thom have been exhaustively covering the Whole Foods litigation. Now, their latest efforts have been cited by the parties in the Petition (see n. 1) as leading examples of the outpouring of “critical commentary” that followed the D.C. Circuit’s decision. Here’s Thom’s post and here is Geoff’s. Congrats to Geoff and Thom. Lunch is on me if TOTM makes its way into the potential En Banc opinion. By the way, if the petitioners thought Geoff’s first post was “critical,” they should take a look at this one from earlier on in the process or Thom’s analysis of the district court’s decision.

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News like this, is in no small part due to men scholars like Gordon Tullock whose presence at the law school was a significant one.  Gordon announced his retirement today (HT: Boettke).  In the coming days, there will likely be a number of statements of admiration of Gordon and his work from people who knew both better than I and will certainly have more amusing anecdotes to tell.  I look forward to reading all of them.  Here’s a post acknowledging Gordon’s retirement from Leonard Liggio.  I did have the pleasure of serving on a dissertation committee with Gordon, discussing workshop papers with him from time to time, and running into him in the law school faculty lounge and taking a lesson about whatever was on his mind.  I didn’t know Gordon very well personally.  But I consider myself quite lucky to have been his colleague for several years and appreciative of the interactions we did have.  You didn’t need to know him for too long to know that you could learn a lot from him.  Gordon is an intellectual giant who knows a lot about, well, seemingly everything.  This is sad news for George Mason, who lost another intellectual giant in law and economics earlier this year in Vernon Smith who moved to Chapman University.  Both will be missed.

Here is Gordon’s Wikipedia entry, and here is Gordon’s own web page.

Northwestern University’s Searle Center on Law, Regulation and Economic Growth is one of the most intellectually interesting and active centers for law and economics around.  Here’s a lineup of research roundtables and conferences scheduled for this fall.  I’ll be lucky enough to be a Visiting Fellow at the Searle Center for a week this September, which will coincide with the Searle Center Conference on Antitrust Economics and Policy this September, which has a fantastic lineup of papers and keynotes from Mike Baye and Jerry Hausman.  If antitrust isn’t your thing, check out the upcoming events on empirical studies of civil liability, property rights economics and innovation, or bad public goods.

Steve Hurwitz as a characteristically thoughtful and provocative post over at Austrian Economists on identifying the most dangerous fallacies of fact and theory in economics that a reasonably informed layperson would believe. Steve’s nominations are that the average person believes that the “economic well-being of the average American is on the decline” (fallacy of fact) and (for the fallacy of theory) “that consumption (rather than savings/investment) is the key to economic growth.” The comments are definitely worth a read if you find the topic interesting and include lots of good nominations.

This line of thinking got me mulling over an antitrust-oriented version of the question. I don’t know exactly what to do with “dangerous” in this context, and I’m not sure comparisons with layperson perceptions of antitrust are very interesting, so let me make adjust the question a bit: what are the two fallacies (one fact, one theory) that lead to the most misdirected antitrust law or policy?

Here are a few that come to mind. First, some potential candidates for the most pernicious fallacy of theory:

• Antitrust enforcers and economists know how to confidently predict welfare outcomes when assessing static v. dynamic efficiencies
• Optimal antitrust deterrence is either infinite (or error costs are zero) or zero
• Convergence is always and everywhere a good thing
• Market concentration is a good predictor of welfare outcomes
• We don’t need to worry about false positives if we can’t identify them in the litigated cases

Now, some fallacies of fact:

• Resale Price Maintenance (or other vertical agreements) has similar consequences to horizontal price-fixing in terms of consumer welfare (see, e.g. here)
• There is strong evidence supporting aggressive antitrust enforcement of single firm conduct generally
• There is no evidence to support aggressive cartel enforcement
• There is substantial empirical support for raising rivals’ cost theories of exclusive dealing, bundling, or other vertical contracting practices
• “Consumer welfare” means the same thing when invoked by US and EU enforcers as a description of the their policy objectives

Historically, the theoretical underpinnings of the positive relationship between concentration and price and been obliterated in economics but still play a significant role in the Merger Guidelines and antitrust policy in general. Its hard to beat the havoc created there. But the question of how to do antitrust enforcement when static and dynamic welfare effects must be weighed with some precision is one that is getting more and more important. Errors in that context also trigger concerns about innovation and economic growth and therefore warrant significant concern. Still, hard to beat concentration and price on this one.

On the fact side, I think the last two are the most problematic and produce the greatest obstacles to more sensible antitrust enforcement. Hard to pick just one. But I’d go with lack of empirical support for exclusionary theories of single firm conduct as the big winner with the superficial level of international discourse at the policy level about the objectives of antitrust policy, how to interpret facts in light of anticompetitive theories on both sides of the Atlantic, and the identifying the real meaning “consumer welfare” as a close second.

We’ve mentioned the FTC at 100 self-assessment project before. The FTC at 100 home page is available here and has links to webcasts and other relevant material. The webcast of the July Washington DC event is already up. The next scheduled events are in Chicago at Northwestern University in September and Boston in October. Another interesting aspect of the project is that the FTC has included an online forum designed to elicit comments on four topics related to FTC performance: (1) mission, structure, & resources; (2) evaluating its competition mission; (3) its consumer protection mission; and (4) its external relations.

Some blog posts I’ve been reading:

• Professor Bainbridge makes a lot of sense on the case against the Socratic Method in law teaching (so does Gordon Smith). By the way (and the Professor probably does not remember this), but he also gave me very good advice when I went on the job market in 2004. Before going on the market, I was nervously giving a mock job talk at UCLA to a group which included Professor Bainbridge. I started out horribly, but thought that once I got going and talking about the research I became a bit more comfortable and hit my stride, so to speak. Of all the advice I got on actual job talk performance that day, his was the best. He walked up to me after the talk and said: “Good job. It was an interesting talk. But can you please quit playing with the keys in your pocket next time?” To this day, I empty my pockets and place everything in them on the lectern before I start a lecture. I think the advice about the dropping the so-called Socratic Method might even be better.
• Justin Wolfers revisits Stigler’s classic “Conference Handbook” (I prefer to go with a combination of comments 1, 20, and 32)
• A new (to me, anyway) antitrust blog
• Tyler Cowen cracks the drink-ice cube ratio problem
• The best news I’ve heard in awhile

Well, not exactly. But the under card sponsored by the DC Bar is still pretty impressive: James Rill (Howrey, representing McCain) v. Bill Kolasky (Wilmer Hale, representing Obama) September 24 at GW Law School. HT: Antitrust Review.

An article in today’s WSJ, Price-Fixing Makes Comeback After Supreme Court Ruling, reports that minimum resale price maintenance (i.e., the setting of minimum retail prices by product manufacturers) is increasing in light of last summer’s Leegin decision. That’s great news for me, because I’ve spent most of the summer cranking out an article on how exactly such price-fixing should be evaulated now that the Dr. Miles rule of per se legality is dead.

While there is an abundance of academic writing on the economic question of whether and under what conditions RPM may be anticompetitive, very little has been written on the legal question of exactly how courts should evaluate instances of RPM to determine their legality. My article aims to fill in that gap.

The article proceeds in three parts. Part I summarizes the economic literature on RPM, setting forth the anticompetitive risks the practice may pose, the procompetitive benefits it may provide, and the economic conditions that would support the various effects. Part II then summarizes and critiques six legal approaches to RPM that may conceivably govern in a post-Leegin world. The six approaches that have been proposed are: (1) an unstructured rule of reason (i.e., an approach based on Justice Brandeis’s famous “all things considered” version of the rule of reason); (2) a rule of per se legality (suggested by Judge Posner); (3) the approach proposed by a group of states attorneys general (it would require a procompetitive justification for RPM if the practice resulted in a price increase); (4) the approach set forth by the FTC in the Nine West matter (it would require a procompetitive justification if certain “Leegin factors” were present); (5) the approach proposed by economists William Comanor and F.M. Scherer (it would condemn dealer-initiated RPM and would subject all other RPM to a quantitative foreclosure test); and (6) the approach set forth in the Areeda/Hovenkamp treatise (it would allow a challenger to set forth a prima facie case on the basis of certain structural criteria and would then provide for an affirmative defense that the practice is procompetitive). Finding all of these approaches deficient, I set forth, in Part III of my article, an alternative approach. I’ll provide more detail on my approach in a subsequent post.

I wonder if I’ve left out any proposed rules of reason. Has anyone seen another proposal for how RPM should be evaluated post-Leegin? If so, I’d love to know!

As the start of the new academic year inches closer, and students are deciding what courses to take, I thought I’d give a little plug to antitrust law. I’ve seen enrollment in antitrust courses vary dramatically over the past 10 years or so since I was a student and now as a professor. I certainly know the case against taking antitrust: “its not a bar course,” “you have to know a bunch of economics, right?”, and “its really difficult.”  But I hear this question from students frequently and I thought I’d share my typical answer to the titular question here:

First, make no mistake, antitrust is flat out interesting stuff.  We’re talking cartel arrangements in rooms filled with smoke, complex collusive arrangements, all sorts of unsavory business practices, rent-seeking and use of government restrictions to exclude rivals, and all forms of cutthroat competition between firms to stay alive in a competitive marketplace.  For some reason antitrust has earned the reputation of being a “boring” class for specialists who are interested in economics.  Wrong, wrong, wrong.  Sure, antitrust will force you to learn some economics because the law itself has incorporated economic concepts (see, e.g. the Merger Guidelines).  But this is a feature, not a bug.  Economics can help one understand how the world works and provide some interesting insight on business practices that we observe in the world and impact us everyday at the gas pump, the grocery store, the computers we all work on, and just about everywhere else.  Supply and demand graphs might be boring to some, and I don’t mean to suggest that antitrust is for everyone, but its pretty fun to think about questions like how the Sirius-XM merger will impact prices, or market definition in Whole Foods/ Wild Oats.

Second, antitrust law is become an increasingly important component of the international business landscape.  Take a look at this photo (the countries in red have antitrust laws on the books). Over 100 countries currently have passed antitrust laws (see here). Having at least a passing knowledge of antitrust is increasingly an important asset for corporate lawyers generally.  With antitrust enforcement now in India, China, Hong Kong, Singapore, and the EU-US antitrust convergence/divergence debate growing in importance, challenging legal and economic debates will continue to rage in the antitrust space for years to come (Between you and I, these changing market conditions have also increased demand for antitrust law professors in recent years).

Third, the bar exam issue.  While its true that antitrust law is not going to help you on the bar, neither are a bunch of interesting courses. And one shouldn’t conflate inclusion on the bar exam with general importance in terms or, of course, intellectual interest (which so far as I can tell, is still an acceptable reason for enrolling in courses).  Besides, there is at least some evidence that courseload choices have little to do with bar passage rates.  On top of all that, in light of #2, it is a good time to pursue a career as an antitrust lawyer.

I’ll start with those three.  Feel free to add your own in the comments.

In the current issue of Antitrust Source, including my own submission which I blogged about here.

In response to my post about the optimal institutional design for merger enforcement and the problems associated with dual federal enforcement, a reader points me to this related paper by Jon Klick, Francesco Parisi, and Norbert Schulz in the International Review of Law and Economics which models alternatives for allocating decision-making across multiple agencies. One of the fundamental insights is that fragmented regulatory authority can result in actions that produce various sorts of externalities in regulatory competition. For example, in concurrent regulation, one might think of the first agency’s decision to approve a merger as increasing the size of the rents that can be extracted by the second actor. This might be a good model of the sizeable extraction achieved by the FCC in the satellite radio merger.

One way to deal with, or at least mitigate, the inefficiencies associated with this sort of fragmentation is cooperation between agencies (e.g. the FTC and DOJ on merger enforcement. The solution I discussed in my post was eliminating the FCC’s jurisdiction (with Danny Sokol’s friendly amendment in the comments with respect to other agencies adopted).  But these solutions are really just tinkering on the margins aren’t they?  3 agencies or 2?  2 or 1?  Bryan Caplan raises another option: abolish antitrust. Ok, Bryan is talking about antitrust in Hong Kong, but I believe I’m not mischaracterizing his position. Bryan writes:

Even if you’re a mainstream economist who thinks my general critique of antitrust is overblown, you should still grant that for Hong Kong, I’m right. And doesn’t the fact that Hong Kong’s made it this far without antitrust give you a moment’s pause about the domestic benefits of these laws?

I don’t know if I’m a mainstream economist. But I do think Bryan has overestimated the case in favor of abolition, or at least should take a more nuanced stance. In evaluating the social benefits and costs of antitrust enforcement (including rent-seeking, error and administrative costs) I think one really has to distinguish between cartel enforcement, mergers, and monopolization. The evidence that antitrust can generate net benefits in the first category is much stronger than that it is for either mergers or monopolization. Reasonable minds can differ about the state of evidence in those latter categories, as well as whether “real” antitrust enforcement in those categories results in social costs that swamp potential benefits.

Lets just take cartels as an example.  It would be tough to argue, based on the evidence, that there is enough there to support abolition of cartel prosecution.  And cartel prosecution is a substantial part of the modern competition policy landscape.  Nor do I believe that the fact that Hong Kong is a small open economy or that it has gone a long time without antitrust means that cartel prevention is ineffective in the U.S. or cannot be in Hong Kong.  This is not an optimistic or utopian view of antitrust.  I don’t think I’ve ever been accused of that.  I’m written quite skeptically about enforcement in the single firm conduct area and how little we know in these areas should inform our policy.  One can argue that in practice, cartel enforcement really amounts to consumer welfare decreasing activity by overzealous regulators. But thats an empirical question. And I think the evidence pretty strongly suggests that cartel enforcement is good for consumers. The evidence with respect to mergers is a mixed bag and there is no general consensus. The picture is much more bleak with respect to single firm conduct, where not much is known and there is very little empirical evidence to suggest that antitrust enforcement is producing the types of outcomes that would justify the social costs of enforcing and administering those laws.

Bottom line: the position for abolishing antitrust, if we are are basing this on the current state of theory and evidence, is weakest against cartels, uncertain with respect to mergers, and much stronger for single firm conduct.

Financial Times (HT: Danny Sokol) highlights the problem of multi-jurisdictional antitrust enforcement, emphasizing the rise of India and China.  The article repeats the basic point, worth repeating, that international cooperation can help avoid bad outcomes with multiple regulatory stakeholders with different incentives and institutional environments:

That is not a criticism of the new competition rules in either country – both are modernising laws on which the legal profession has been consulted. If enforced both promptly and evenhandedly, strong antitrust laws will mark a step towards competitive capitalism, rather than crony capitalism, in both countries. Local consumers will benefit. 

On international deals, however, China and India (and the US and European Commission) should leave mergers to the one jurisdiction best placed to handle them. If a merged company would have $200m sales and a 5 per cent market share in India, but $10bn sales and a 30 per cent share in the US, it is obvious who should take the lead. A forum to co-ordinate regulators – the International Competition Network – already exists. China should join it.

I’m pleased to see the FT calling attention to this issue.   Its an important one.  Perhaps one the most important on the antitrust enforcement policy landscape.  Joining the ICN and the international antitrust community more broadly is one way to generate cooperation and avoid bad outcomes.  But count me a skeptic with respect to the proposition that assigning jurisdiction to the competition policy agency with the greatest dollar value interest in the activity at issue will solve the problem.  The problem of mitigating the costs of multiple international competition agencies is a complex one with a lot of moving parts (Chairman Kovacic’s recent speech is a must-read on these issues).

I’ve argued previously that the policy discussion ought not emphasize “convergence or divergence per se, but jurisdictional competition combined with facilitation of superior substantive analytical norms.”  In other words, lets talk about getting optimal substantive standard adopted, say what we mean when we use code words like “convergence” (e.g. in the U.S. this appears to mean, movement to the standards adopted by our courts, and in particular, the Supreme Court), and respectfully but firmly and consistently hold competition agencies accountable for their decisions and enforcement philosophies.  This means that there is a lot of work to be done by economists and lawyers in figuring out the competitive effects of various forms of conduct, both in theory and testing these theories with data, in order to come to some sort of agreement about the design of optimal standards with sensitivity to important institutional differences between countries.

To be sure, jurisdictions will disagree about the state of the evidence of strength of opposing theories.  Differences in legal institutions and history will also drive divergence.   The optimal level of divergence is not zero.  But the substantial current level of divergence, in my view, could be reduced to the benefit of consumers with international agreement on a few important and (to my mind at least) not-so-controversial principles, e.g. the adoption of the error-cost framework as an appropriate lens through which to evaluate optimal antitrust rules.  The ICN and the international antitrust community can and do make substantial efforts to instigate this type of discussion and so must be, along with other institutions which facilitate cooperation, part of the solution.  But my sense is that the current debates focus too little on the actual state of economic theory and evidence and too much on everything else.

Part 1, Part 2, and Part 3. Here is the paper with Betsey Stevenson.