Our law librarian pointed me to Stu’s Views Law & Lawyer Cartoons website (www.stus.com) which contains cartoons for various corporate law cases (among other things). Here’s two examples:
Archive for August, 2006
Corporate Law Comics
Posted by Bill Sjostrom on August 24, 2006
Posted in corporate law | Comments Off
The SEC: This one is for you, Peter Oh.
Posted by Elizabeth Nowicki on August 22, 2006
My position in the areas of securities law and corporate law has consistently been that painful shareholder lawsuits are generally likely to be much more effective deterrents than toothless legislation (SOX?) or rulemaking by an agency ill-equipped or disinclined to ruthlessly enforce its rules. I have taken this position in my writing with respect to investment banking research analysts, I have taken this position with respect to attorneys, and I have taken this position with respect to corporate directors. (I am soon to re-articulate my position with respect to attorneys at an upcoming conference at Columbia – mark your calendar.)
In at least one of my articles, however, I cite (for purposes of disagreeing with) Peter Oh’s article titled “Gatekeeping,” in which he takes the position that the SEC is well-situated to be an effective gatekeeper. Peter’s position is idealistic, in my view, and, having worked for the SEC and observing the agency over the past decade, I am of the option that the SEC is hamstrung by political pressure (see, e.g., resignations of Donaldson and Pitt) and thin resources. Mind you, the SEC is staffed with brilliant lawyers, accountants, and economists, and the SEC certainly can and should be an astoundingly effective gatekeeper, but sometimes reality gets in the way.
Exhibit A: The WSJ had an article today about an SEC lawsuit against some scammers who appear to have duped 64 investors out of $1.6 million. This suit is similar to many brought by the SEC – small-scale scammer, clearly scamming, as easy a target as fish in a barrel. The SEC will likely take the scammers discussed in the article off the street, which will be a good thing, but I have to say that I’d much rather the SEC go after the bigger scammers who have impacted (negatively) more investors. Granted, the SEC has relatively recently (past decade) snarked at a bunch of heavy hitters – Goldman and E&Y and Enron among them – but how much can the SEC really do with its (1) limited funding and (2) awkward political position (the way the Pitt/Donaldson terms ended sat very poorly with me)?
Mind you, I support the SEC fully, and I think we (corp. and secs. scholars) should be encouraging our students to consider working for the SEC (incredible experience and super, super mission). I have nothing but the best things to say about the senior folks I was able to watch in action while at the SEC – Arthur Levitt, Harvey Goldschmid, David Becker, Dick Walker, Steve Culter, etc. – but I think that, as an “institutional” matter, the SEC is not going to soon be the knight in shining armor it could be. There are just too many currents to swim against. Or at least let me just say that I will not sleep better tonight knowing that the SEC is going after Dante Jarvis, in Hicksville, NY.
Posted in Uncategorized | 2 Comments »
The Law and Economics of Contracts
Posted by Josh Wright on August 21, 2006
This new chapter in the forthcoming Handbook of Law and Economics (Polinsky & Shavell, eds.) from Avery Katz, Benjamin Hermalin, and Richard Craswell looks like essential reading for anyone interested in economic analysis of contracts and contract law. Here’s the abstract/introduction:
This paper, which will appear as a chapter in the forthcoming Handbook of Law and Economics (A.M. Polinsky & S. Shavell, eds.), surveys major issues arising in the economic analysis of contract law. It begins with an introductory discussion of scope and methodology, and then addresses four topic areas that correspond to the major doctrinal divisions of the law of contracts. These areas include freedom of contract (i.e., the scope of private power to create binding obligations), formation of contracts (both the procedural mechanics of exchange, and rules that govern pre-contractual behavior), contract interpretation (what consequences follow when agreements are ambiguous or incomplete), and enforcement of contractual obligations. For each of these sections, we address the economic analysis of particular legal rules and institutions, and, where relevant, connections between legal arrangements and associated topics in microeconomic theory, including welfare economics and the theory of contracts.
Posted in contracts, economics, law and economics, legal scholarship, scholarship | 2 Comments »
Hovenkamp on Slotting, Discounts, and Competition for Distribution
Posted by Josh Wright on August 20, 2006
Like Thom, I also have spent the last few weeks reading Herbert Hovenkamp’s excellent new antitrust book, The Antitrust Enterprise: Principles and Execution. I am looking forward to Thom’s review in the Texas Law Review, and wholeheartedly agree with him that Hovenkamp’s book is an important and significant contribution to the antitrust literature (see also Randy Picker’s book review here describing “The Antitrust Enterprise as The Antitrust Paradox for a post-Chicago antitrust landscape”). I’m still digesting most of the book, and perhaps will share some more thoughts in this space later on, but thought I would chime in with some thoughts on two issues relevant to my own research on slotting contracts, discounts, and competition for product distribution.
Hovenkamp endorses a generally sensible approach to antitrust treatment of manufacturer payments, e.g. quantity and market-share discounts, slotting allowances, and Lepage’s-type bundled discounts. Hovenkamp recognizes that discounting is a “pervasive feature of the American economy,” and that “quantity and market-share discounts are virtually always competitive unless they amount to outright exclusive dealing,” but he adds that “even exclusive dealing is competitively harmless in most circumstances.” Hovenkamp appears to have greater reservation about the potentially exclusionary effects of bundled discounts, but ultimately concludes that administrative costs justify a lenient antitrust rule:
Even though the theory of the bundled discount is properly analogized to tying or exclusive dealing rather than predatory pricing, an administratively prudent rule might insist on a showing the the discounted package is priced below average variable cost.
As I’ve noted in this space previously, and this paper (now in print at 23 Yale Journal on Regulation 169) antitrust rules should reflect the welfare benefits generated as shelf space payments are ultimately passed on to consumers:
If the retail sector is competitive, which is almost always the case as a result of low barriers to entry, these payments are passed on to consumers regardless of form. These payments create first order benefits for consumers in the form of lower prices and higher quality. A coherent antitrust policy will recognize that these payments are a form of the competitive process, namely price competition, and should be treated as such.
Further, where anticompetitive exclusion is the competitive concern, antitrust law would be best served by establishing safe-harbors for distribution contracts unlikely to create anticompetitive effect, i.e. short-term contracts or contracts foreclosing less than 40% of distribution assets. This approach applies to competition for distribution generally, and is not limited to bundled discounts. Thom’s post and analysis in his Minnesota Law Review piece offer sensible and similarly-minded policy proposals for evaluating bundled discounts. With all of that said about the general sensibility of Hovenkamp’s approach here, I have two quibbles upon which I will expand below the fold.
Posted in antitrust, economics, federal trade commission, legal scholarship | 1 Comment »
Dennis Carlton Appointed to Serve as Deputy Assistant AG for Economic Analysis
Posted by Josh Wright on August 20, 2006
The press release is here. I suspect that this appointment will be met with universal approval. It should be. Carlton will be joining the DOJ in October. (HT: Antitrust Review)
Posted in antitrust, economics | 2 Comments »
SSRN Top Tens for Corporate, Corporate Governance, and Securities Law
Posted by Bill Sjostrom on August 16, 2006
The current SSRN top tens for corporate, corporate governance, and securities law are after the jump. Read the rest of this entry »
Posted in SSRN | Comments Off
George J. Stigler: The Father of Empirical Law and Economics?
Posted by Josh Wright on August 15, 2006
My second installment is up at ELS Blog and answers this question in the affirmative.
Posted in economics, law and economics | Comments Off
Saving Tigers (and Other Endangered Species)
Posted by Thom Lambert on August 15, 2006
Want to save endangered species? Turn them into private assets. So argues Barun Mitra in today’s NYT.
In Sell the Tiger to Save It, Mitra observes that our thirty year-old conservation policy, which prohibits harm to individual tigers and the trading of tiger products, has failed to increase the tiger population. The problem, Mitra argues, is that the prevailing prohibitionist approach fights markets rather than harnesses them:
[L]ike forests, animals are renewable resources. If you think of tigers as products, it becomes clear that demand provides opportunity, rather than posing a threat. For instance, there are perhaps 1.5 billion head of cattle and buffalo and 2 billion goats and sheep in the world today. These are among the most exploited of animals, yet they are not in danger of dying out; there is incentive, in these instances, for humans to conserve.
So it can be for the tiger. In pragmatic terms, this is an extremely valuable animal. Given the growing popularity of traditional Chinese medicines, which make use of everything from tiger claws (to treat insomnia) to tiger fat (leprosy and rheumatism), and the prices this kind of harvesting can bring (as much as $20 for claws, and $20,000 for a skin), the tiger can in effect pay for its own survival. A single farmed specimen might fetch as much as $40,000; the retail value of all the tiger products might be three to five times that amount.
Yet for the last 30 or so years, the tiger has been priced at zero, while millions of dollars have been spent to protect it and prohibit trade that might in fact help save the species.
A property rights-based approach to conservation similarly offers greater protection for elephants, as Zimbabwe’s experience reveals. (See also here.)
Unfortunately, our own Endangered Species Act, which places severe development restrictions on any property providing habitat for listed species, turns endangered critters (and flora) into liabilities. The result is the regrettable “shoot, shovel, and shut-up” syndrome.
Posted in environment | Comments Off
Hovenkamp on the Indirect Purchaser Rule
Posted by Thom Lambert on August 14, 2006
I’ve had the pleasure of spending the last few weeks curled up with Herbert Hovenkamp’s wonderful new book, The Antitrust Enterprise: Principle and Execution, which I’m reviewing for the Texas Law Review. Hovenkamp is a sharp thinker and a wonderfully clear writer, and the book is a fantastic read for scholars and students alike. As a reviewer, though, I’m charged with pointing out the weak spots. Hovenkamp’s discussion of Illinois Brick‘s indirect purchaser rule is, I believe, one of those spots.
For the unitiated, the Supreme Court’s famous Illinois Brick decision held that those who purchase only indirectly from a monopolist or cartel may not recover overcharge damages; instead, the direct purchaser may collect the entire amount of any overcharge, even if that purchaser has passed some of the overcharge on to downstream (i.e., indirect) purchasers. As Hovenkamp notes, the primary rationale for the Court’s holding in Illinois Brick was the tremendous difficulty of accurately determining, in a judicial proceeding, the proportion of an overcharge passed on to downstream purchasers.
While he agrees that computing passed-on damages is extraordinarily difficult, Hovenkamp maintains that that difficulty does not justify the rule precluding indirect purchaser actions. He asserts that the Illinois Brick Court’s reasoning relied on two false assumptions: first, that “overcharge� was the proper measure of damages for every firm in the defendant’s distribution chain; and second, that calculating downstream damages would require tracing and apportionment of the initial overcharge among the direct purchaser and the various downstream purchasers.
With respect to the first assumption, Hovenkamp argues that overcharge is not the proper measure of damages for intermediary purchasers (e.g., assemblers, distributors, or retailers), who will generally respond to supracompetitive pricing by passing along at least some of the price increase and suffering reduced sales as a result of their higher prices. For example, if a cartel of liquor manufacturers raises the price of a bottle of liquor from $10 to $14, retailers may respond by raising the retail price of a bottle from $13 to $16. Their losses will consist of an absorbed overcharge of $1 per bottle sold plus the profit losses resulting from reduced sales at a $16 retail price (less any incremental profits from increased sales of alternative liquors). An overcharge measure, Hovenkamp observes, “never captures the losses resulting from lost volume.� By contrast, a “lost profits� measure would do so and would account for the degree to which middlemen are able to pass overcharge on to downstream purchasers.
With respect to the second assumption, Hovenkamp asserts that indirect purchaser actions do not require tracing and apportionment of the overcharge. Rather than calculating what percentage of an overcharge was absorbed by middlemen and what percentage was ultimately paid by indirect purchaser plaintiffs, courts could use the familiar “yardstick� or “before-and-after� methods to determine the amount of overcharge paid by indirect purchaser plaintiffs. The yardstick method calculates damages by comparing the price the plaintiff paid to the prevailing price in some different but similar market in which the anticompetitive practice at issue is not occurring. The before-and-after method compares the plaintiff’s price to those prevailing in the same market prior to and subsequent to the violation period. Neither method would require determination of pass-on percentages. Hovenkamp therefore contemplates a system in which injured middlemen would recover lost profits and consumers would recover overcharges, with both lost profits and overcharges measured using either the yardstick or before-and-after method.
I believe Hovenkamp’s proposal to abandon the indirect purchaser rule is a bad idea. The indirect purchaser rule likely provides a closer-to-optimal level of antitrust deterrence, and at a lower administrative cost, than Hovenkamp’s proposed approach. To see why, read below the fold. Read the rest of this entry »
Posted in antitrust, law and economics | 3 Comments »
Is Antitrust an ELS Success Story?
Posted by Josh Wright on August 14, 2006
My first installment as a guest-blogger at ELS Blog is up.
Posted in announcements, antitrust, blogging, economics | Comments Off
