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).
Archive for November, 2006
WaPo on stock options
Posted by Bill Sjostrom on November 15, 2006
Posted in option timing scandal | 2 Comments »
Predicting a Few Champions Just for Fun …
Posted by Josh Wright on November 14, 2006
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 in musings, sports | 3 Comments »
FTC/DOJ Exclusive Dealing Testimony Preview
Posted by Josh Wright on November 14, 2006
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.
Posted in announcements, antitrust, economics, federal trade commission, legal scholarship, regulation, scholarship | 1 Comment »
Medical Self-Defense, Organ Markets, and the Poor
Posted by Josh Wright on November 13, 2006
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.
Posted in economics, law and economics, legal scholarship, markets, regulation | 2 Comments »
Dura and Section 10(b)
Posted by Elizabeth Nowicki on November 13, 2006
In my Sec. Reg. class, we are covering Section 10(b) of the Securities Exchange Act of 1934. One of my students raised a question today regarding Section 10(b) after Dura that left me ruminating. The student’s question was about whether a selling stockholder who sold at a profit can bring a suit after Dura if the stock the stockholder was misled into selling later went up in price when the truth was revealed:
Assume Corp. X issued a press release indicating that their long-awaited drug, Drug 1, had just received FDA approval and Corp. X expected the drug to make 2006 a great year. The press release stated that Corp. X viewed Drug 1 as the drug of a lifetime. What Corp. X did not disclose for competitive reasons is that, actually, Corp. X had an even better product in the pipeline that is a sister product to the drug that was just released and is sure to get FDA approval. This product, Drug 2, was basically cleared by the FDA, but Corp. X had to wait for some formalities to be tended to. In the meanwhile, Corp. X did not want to alert its competitors that Drug 2 lurked in the wings.Â
Stockholder A sells her Corp. X stock when the press release regarding Drug 1 is issued. Stockholder A bought at $10 and sold at $20.  Seven weeks after Stockholder A sells her Corp. X stock, Corp. X announces FDA approval of Drug 2, and the stock price of Corp. X soars to $40 per share.
Assuming Stockholder A can establish materiality and scienter, can Stockholder A sue to recover the difference between $20 and $40? I have not actually contemplated this question since the Dura opinion was issued. Without looking carefully at the Dura language one more time, I had to hold off on answering the question. Has anyone else thought about this point? (I am sure many of you have; feel free to share your thoughts.)
Perhaps if I stop typing and sit quietly for a moment, the answer will be obvious. . . .
Posted in Uncategorized | 3 Comments »
Crane and Lambert on Hovenkamp — the Closet Chicagoan
Posted by Thom Lambert on November 13, 2006
Cardozo professor Dan Crane and I are living parallel lives. We both attended Wheaton College and the University of Chicago Law School (Dan was two years ahead of me). We began teaching at the same time. We both teach antitrust law and have written on bundled discounts. Like Josh, we’re both presenting at the DOJ/FTC hearings on single-firm conduct. And we’ve both recently written reviews of Herbert Hovenkamp’s terrific new book, The Antitrust Enterprise: Principle and Execution. Dan’s review, forthcoming in Michigan Law Review, is entitled Antitrust Modesty. Mine, forthcoming in Texas Law Review, is called Tweaking Antitrust’s Business Model.
As both titles indicate, Hovenkamp’s book does not call for radical change to existing antitrust rules. In that sense, the book differs from the famous antitrust expositions by Robert Bork (The Antitrust Paradox, 1978) and Richard Posner (Antitrust Law: An Economic Perspective, 1976). The difference in tone, though, does not reflect a difference in underlying philosophy. Like his Chicagoan predecessors, Hovenkamp rejects the Warren Court-era’s focus on protecting competitors rather than competition, and he defines “competition” in a manner that focuses not on the number of firms in a market but on the degree to which the market generates low prices, high output, and innovation. He maintains that
Antitrust is a defensible enterprise only if intervention into the market is economically justified. That entails that the market be “bigger†in some sense as a result of the intervention—whether “bigger†is measured by higher output, improved quality, lower prices, or more innovation. Furthermore, the increase must be enough to justify the high cost of operating the antitrust machinery.
Hovenkamp can afford to be “modest” and call for a mere “tweaking” of antitrust because the Chicago School largely succeeded in transforming antitrust doctrine. It is therefore curious that Hovenkamp takes pains to distance himself from the Chicago School, ultimately aligning himself with the competing Harvard School. Read the rest of this entry »
Posted in antitrust, economics, law and economics, regulation, SSRN | 3 Comments »
eSapience Center for Competition Policy Launches Website
Posted by Josh Wright on November 12, 2006
The eSapience Center for Competition Policy (eCCP) has launched its website, and it looks like a very promising resource for competition policy lawyers and economists. The site includes access to eCCP’s Competition Policy International journal (which has already attracted articles from a number of top competition policy writers; here is the link to the latest issue), case notes, op-eds, collections of works, and book reviews. There is something for everybody: academics, practitioners, policymakers, and even those with just as passing interest in competition policy.
In the interests of full disclosure, I am a member of eCCP’s Advisory Board (but don’t let that stop you from checking it out). Here is eCCP’s description of its mission:
The eSapience Center for Competition Policy (eCCP) is designed to shape the debate on competition policy worldwide. The objective of eCCP is to help ensure that competition policy serves the long-run benefit of society through vigorous long-run competition for the market and in the market. It operates under the direction of David S. Evans, Chairman of eSapience, and Richard Schmalensee, Dean, MIT Sloan School of Management.
eCCP is a publisher and distributor of timely content, such as published articles, op eds, e-collections and book reviews, written by academics, executives, policymakers, practitioners and other thoughtleaders. Its online presence, eccp.esapience.org, serves as a vehicle for delivering real-time commentary and reactions to the latest changes in the global competition policy community.
eCCP is the publisher of Competition Policy International, a peer-reviewed publication related to global competition policy with a particular focus on competition policy in the United States, the European Union, and the Commonwealth countries. CPI is published twice a year in the spring and autumn and is run by an independent board of editors and editorial board to ensure quality, balance, and objectivity.
eCCP also organizes regular meetings and seminars, bringing together senior-most members of its community to discuss and debate existing and pending rules and procedures. eCCP’s Summit at Como is an annual closed-door forum of the leading minds in the world of competition policy held at Lake Como, Italy every October.
Questions? Comments?
Please direct media inquiries or requests for more information about eCCP to the Managing Editor, Joost van Hees, at +1-617-844-1800 or email: joost.vanhees@esapience.org.
Posted in announcements, antitrust, economics, legal scholarship, markets, regulation, scholarship | Comments Off
Long Term Investors and Darts
Posted by Elizabeth Nowicki on November 9, 2006
I read with interest an article on cnn.com indicating that we have been on the “longest down streak since June 2005.â€
I have two comments:
1. “The longest down streak since June 2005†is hardly anything to write home about. We are talking about the longest down streak in the past 16 months, not . . . since Black Monday. Yet, at first blush, a sentence including the phrase “the longest down streak since. . .†is unnerving. Unnecessarily so, in my view. And if it is unnerving to me, I have to believe it is unnerving to folks who know less about the markets than I do.
2. Now is a good time to talk about darts.
When I saw the cnn.com notation about the “longest down streak since June 2005,†my immediate thought was “so what.â€Â If we all agree that investors are supposed to either be in the market for the long term or keeping their cash under the mattress (or in gov’t bonds), why should the typical investor care that we are having the longest down streak of the past 16 months? I must admit, however, that my “so what” comment in response to the down streak observation was colored with a bit of annoyance with the media sources. Does the media really need to throw out random market information that is best considered with more context than is provided in the article? (Note to self: is it “does the media” or “do the media”)
 My annoyed response to the cnn.com language about the “longest down streak†compelled me to go find a reference to the studies that showed that selecting stocks by way of randomly throwing darts was close to as profitable as having professionals pick stocks. My point? For a long-term investor, things generally appear to work out if the investor is diversified or has a dart board. So the news about what the market is doing today or has done over the past . . . 16 months is not particularly relevant. The “down streak†language and/or the fear of another bubble (or burst) are nothing new. But the long-term investor who has carefully selected his portfolio using the dart method really should tune out the noise about short-term changes in the stock market. I think it is time to re-remind Jane Q. Investor that she should be diversified, and balancing the window of her investments against the window within which she needs the money. Taking a short-term view of what the market is doing right now is like planning your entire future career based only on the job listings that are today available in the newspaper classified section. The media appears to actually encourage this short-term focus for “we, Jane Q. Public,†and I cannot say that I much appreciate that hype.
So CNN.com’s comment that we were experiencing the “longest down streak since June 2005†did not scare me into selling at a loss or some such. Rather, the comment made me want to go back to the SEC, so that I could work with the SEC’s Office of Investor Education on a media blitz designed to remind investors how they might just want to consider throwing darts and then sitting tight for the long haul as opposed to responding to media noise or tracking the market by way of media commentary. (In defense of the SEC OIE, which is a great great office by the way, many people do not even think to look on the SEC website for useful information. Many folks do not know the SEC exists. Regrettable, that.)
Posted in Uncategorized | 5 Comments »
FTC/ DOJ Section 2 Hearings Continue
Posted by Josh Wright on November 7, 2006
The FTC/ DOJ Section 2 Hearings (aka Hearings on Section 2 of the Sherman Act: Single Firm Conduct as Related to Competition) continued earlier this week with a session on tying Wednesday featuring David Evans, Robin Cooper Feldman, Mark Popofsky, Donald Russell, Michael Waldman, and Robert Willig. This link contains presentation materials and will eventually, I think, make transcripts of the sessions available. The next session is on November 15th and focuses on exclusive dealing. The exclusive dealing session is followed by a discussion of loyalty discounts on November 29th.
Consistent with TOTM’s policy of tolerating encouraging self-promotion of all types, I am also pleased to report that I will be participating in the Hearings’ exclusive dealing session November 15th along with a group of distinguished economists and antitrust lawyers. I’m really looking forward to the discussion. My slides and presentation materials will be available on the FTC site, but I will plan on posting them here as well, hopefully along with some post-Hearing reactions.
Posted in announcements, antitrust, economics, federal trade commission, regulation | 4 Comments »
No More 10-Qs?
Posted by Bill Sjostrom on November 7, 2006
According to the Financial Times (via CFO.com), the Big Four accounting firms will recommend in a joint paper to be released tomorrow that the current system of quarterly reports be scrapped for “real-time, internet based reporting encompassing a wider range of performance measures.” It will be interesting to see what exactly they have in mind. In particular, how will liability issues be addressed? Obviously, more frequent and quicker disclosure is good for market efficiency but increases the chances of misstatements and omissions of material facts. Oh, yeah, the SEC is going dis-imply Rule 10b-5 private causes of action and cap auditor liability, so maybe increased liability exposure isn’t a big concern. But seriously, in addition to potential 10b-5 liability, how will the proposal impact incorporation by reference into registration statements and the attendant potential Section 11 and 12 liability?
Posted in 10b-5, securities litigation, securities regulation | 3 Comments »
