The August 24th draft is available in Chinese and English here. HT: Danny Sokol.
Archive for August, 2007
China's Anti-Monopoly Law
Posted by Josh Wright on August 30, 2007
Posted in antitrust, international trade, law school, markets, regulation | Comments Off
Froeb on Economics in Whole Foods
Posted by Josh Wright on August 30, 2007
Here’s a taste of the reaction of former FTC Bureau of Economics Director Luke Froeb to some of the economic analysis in the recent Whole Foods merger case:
The heavily redacted court documents refer to entry “experiments” to determine the degree of substitution between the two merging stores. We found the following on the Whole Foods website,
If we [close the Wild Oats Store right across the street], we believe approximately 50% of the volume their store does will transfer to our store, with the other 50% migrating to our other competitors (these estimates are based on our past experience with similar situations).
It is hard to believe that the diversion ratio could be this big. But if it is, then simple models of competition would predict a big enough post-merger price increase to put the two stores into a relevant market by themselves.
Go read the whole thing here. There are links there to the relevant public (redacted) versions of the expert reports.
Posted in antitrust, economics, federal trade commission, markets, mergers & acquisitions, regulation | 1 Comment »
The Elusive Profitability of Voluntary Pricing
Posted by Josh Wright on August 28, 2007
WSJ has a fascinating story this morning about a group of restaurants in Utah, Washington, Colorado and other places adopting a completely voluntary pricing system. No registers. No prices. No “suggested” prices and no tips. The business model is essentially to provide food and allow customers to put whatever they want in a lock box at the front of the store. This is similar to the former economist turned Bagel Man in Freakonomics who delivered bagels to DC area offices on a quasi-honor system. There are some obvious potential benefits to this strategy in the retail setting: avoiding credit card system fees, not having to pay somebody to run the register (though somebody presumably still has to count the money to calculate taxes), and potentially differentiating one’s offering from competitors who still believe in the whole “prices” thing.
But my sense is that, neighborhood lemonade stands aside, long term profitability with voluntary pricing in any sort of retail setting would not be likely. The Bagel Man found that approximately 13% of office workers were “stealing” bagels. I doubt that the rate would be much lower in a local cafe or coffee shop than it would be in the cafe setting because the former, it seems to me, would involve greater reputational and informal sanctions for “cheating” the implicit agreement to pay fair value. However, these types of shops also seem likely to have a small group of loyal and repeat customers and so it may be possible that such an environment comes close to replicating these sanctions (this is consistent with the Bagel Man’s findings that theft rates were lower in smaller offices). This seems like a substantial number of non-paying customers in a setting where margins are typically very small and barriers to entry are low. The hope, of course, is that some customers will subsidize the free-riders. But in the retail setting, especially over time, one would expect that the inflow of free-riders would be substantial and difficult to control because retailers do not observe which customers are free-riders and which are subsidizers and thus cannot exclude them. Consistent with this view, the article does suggest that these restaurants, with some exceptions in both directions, are largely breaking even.
Posted in business, economics, markets, nonprofits | 7 Comments »
Chinese Antitrust Law Coming Soon … ?
Posted by Josh Wright on August 27, 2007
It looks like, according to this report, the long-awaited Chinese Anti-Monopoly law will be passed next week and take effect August 1, 2008. See here for my recent post on the Chinese antitrust law with links to relevant scholarship, and here for Geoff’s earlier post while visiting the Conglomerate a while back. See also the China Business Law Blog on the NDRC’s successful challenge against the China Ramen Noodle Association under the Price Law.
UPDATE: Danny Sokol points us to Paul Jones’ translation of a Chinese newspaper report (here is a link for our Chinese readership) on the highlights of the Chinese Law.  Though I sincerely hope that something has been lost in translation here, it appears there is a prohibition on “restricting the purchase of new technology, new equipment or restrictions on the development of new technologies.â€
Posted in antitrust, regulation | 2 Comments »
Our "Protective" FDA
Posted by Thom Lambert on August 23, 2007
The FDA, it seems, is rejecting more new drugs. The agency approved only 61 percent of 2007 drug applications through mid-August, down from 73 percent in the same period last year. A new report by James Kumpel of Friedman, Billings, Ramsey & Co. shows that FDA approvals of drugs made from new chemical compounds are at their lowest level in a decade.
This should not be surprising. The FDA is still taking heat for its approval of Vioxx, which manufacturer Merck voluntarily withdrew from the market. The agency is thus flexing its protective biceps, being extra careful not to approve overly risky drugs.
The problem is, federal law forces all of us to live according to the FDA’s risk/benefit preferences, even though they may not mirror our own. Until the FDA determines that a newly discovered drug is, in its view, safe and effective — a process that takes, on average, 14.2 years — the rest of us aren’t allowed to have it.
This would be troubling enough if the FDA’s risk preferences mirrored those of the average person on the street. In reality, the FDA tends to be significantly more risk-averse than the general population. That’s because the consequences of FDA misjudgments are incommensurate. If the FDA approves a drug that’s “too risky” and people are hurt, the media are all over it and there’s a huge public outcry. By contrast, if the FDA errs in the direction of conservatism (i.e., it fails to approve a relatively safe and effective drug, thereby preventing currently sick people from getting drugs that could help them), there’s usually not much of a news story. (See here for a good explanation of the FDA’s incentives.)
And what about terminally ill people whose only hope is a drug the FDA has not yet approved? Too bad, so sad. The D.C. Circuit recently held that the Constitution does not protect those folks’ right to obtain even those drugs that have passed the first (but not all) stages of FDA approval. In the court’s words, there is no constitutional right for “a terminally ill patient with no remaining approved treatment options to decide, in consultation with his or her own doctor, whether to seek access to investigational medicines that the FDA concedes are safe and promising enough for human testing.”
I must say, I agree with Judge Rogers (and Judge Ginsburg) that
it is startling that the oft-limited rights to marry, to fornicate, to have children, to control the education and upbringing of children, to perform varied sexual acts in private, and to control one’s own body even if it results in one’s own death or the death of a fetus have all been deemed rights covered, although not always protected, by the Due Process Clause, but the right to try to save one’s life is left out in the cold despite its textual anchor in the right to life.
But such is our system — a system that diligently seeks to prevent market failure, with no apparent concern for government failure.
Posted in regulation | 13 Comments »
Welcome the Newest TOTM Blogger: Robert T. Miller
Posted by Josh Wright on August 22, 2007
On behalf of everyone here at TOTM, please join me in welcoming Robert T. Miller as our newest permanent blogger. Robert is an assistant professor at Villanova University School of Law. Prior to joining the faculty at Villanova, Robert was an associate with Wachtell, Lipton, Rosen & Katz and a visiting assistant professor at Cardozo Law School. Robert teaches Business Organizations, Mergers and Acquisitions, Economic Analysis of Law, and Antitrust. In addition to his expertise in these areas, he is interested in philosophy of law, moral philosophy and the philosophy of language. He is also a regular contributor to On the Square, the blog of firstthings.com.
We look forward to Robert’s posts and hope you enjoy them!
Posted in announcements, blogging, truth on the market | Comments Off
Dilbert on Stockholder Meetings
Posted by Bill Sjostrom on August 22, 2007
See here.
At least they bothered to show up at the meeting.
Posted in corporate governance | 1 Comment »
I am so smart, s-m-r-t. . . I mean, s-m-a-r-t.
Posted by Geoffrey Manne on August 17, 2007
I’m not one to gloat. Ok, yes i am. As Thom indicated, the court reached what I believe is the right result in the Whole Foods case yesterday. I’ve been beating this drum since the merger challenge was announced (I won’t bother linking, yet again, to the series of posts. Search for “Whole Foods” up there in the top left corner, if you’re interested). The court’s order indicates that we can expect a redacted (93 page) decision sometime soon. I very much look forward to it.
Just to hedge my bets a little bit, let me note, if I haven’t already, that Kevin M. Murphy was the expert economist for the government. He is believed by some to be the Smartest Economist in the World. His participation in the case on the FTC’s behalf gives me pause. Kevin Murphy doesn’t espouse positions, even for money, that he hasn’t applied his copious analytical skills to evaluating first. If he saw some merit in the case, there was probably some merit in the case. It will be quite interesting to see the court’s decision, and to get a glimpse into the econometric data and analysis brought to bear.
One final note: Clearly, despite John Mackey’s belief to the contrary, there was detailed pricing data available to the government. I suggested, following Mackey’s claim that the FTC didn’t likely have such data, that bringing this case in the absence of pricing data would be “astounding.” Apparently we need not be astounded; at trial it became quite clear that Kevin Murphy was working with detailed data. Â
One more final note: As this article notes (at the very end), the last time the FTC was successful in blocking a merger in court was when it blocked the Libbey Glass/Anchor-Hocking merger. There is definitely some Schadenfreude in this latest setback, since I worked (for Libbey; not the FTC) on the Libbey merger and have been disappointed in the outcome ever since. Actually, there are some interesting parallels between the cases, some of which I discussed in my posts on this case. I hope that we see the court challenging the FTC’s reliance on distribution-channel-delineated relevant markets. This is what the court got wrong (IMHO) in the Libbey case.
And a quiz: Anyone know the source for the title of this post?
UPDATE: My “One final note” above is seemingly inaccurate. I have it on good authority that we should, in fact, be astounded.  It is true, as I noted above, that Murphy was working with detailed pricing data at the hearing. But it is not necessarily the case, of course, that the detailed data was available when the complaint was filed. It does seem to be the case that, as Mackey noted in the blog post I reference above, that the data was not available to the FTC until later. Which does seem astounding to me. Even if Murphy ultimately pulled together a solid and supportive analysis, if the FTC didn’t have that analysis before bringing the complaint — if, that is, the whole thing was built on a foundation of hot docs — the case should simply never have been brought. It will be very interesting to see if the judge was at all moved by the FTC’s inflammatory documents . . . .
Posted in antitrust, federal trade commission | 2 Comments »
Manne Vindicated!
Posted by Thom Lambert on August 16, 2007
Geoff made all the right arguments on the FTC’s embarrassing effort to thwart the Whole Foods/Wild Oats merger. Indeed, he was one of the first to do so and thereby earned an honored link on Whole Foods’ website.
Judge Paul Friedman of the United States District Court for the District of Columbia just denied the FTC’s request for a preliminary injunction. Unfortunately, the judge’s 93-page opinion was issued under seal. My guess is that the opinion credits most of Geoff’s arguments (see also here, here, and here), and hopefully a few of mine.
Posted in antitrust, federal trade commission, markets, regulation | 3 Comments »
Weyerhaeuser and the Search for Antitrust’s Holy Grail (Part I)
Posted by Thom Lambert on August 16, 2007
While the antitrust nerds of the world (including yours truly) have been all atwitter over Leegin’s renunciation of Dr. Miles, another antitrust decision from October Term 2006 may turn out to be more significant in the long run. I’m speaking of Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., in which the Supreme Court considered whether predatory bidding plaintiffs must make the same two-part showing as predatory pricing plaintiffs (i.e., that the conduct at issue resulted in a below-cost price for the defendant’s products and that there was a dangerous probability that the defendant could recoup its short-term losses by exercising market power once rivals were vanquished). In answering that seemingly narrow question in the affirmative, the Court appears to have taken sides in antitrust’s greatest debate: how to define “exclusionary conduct” under Section 2 of the Sherman Act.
Some background for the uninitiated. Section 2 of the Sherman Act prohibits monopolization, which the Supreme Court has defined to consist of two elements: (1) the possession of monopoly power and (2) exclusionary conduct designed to acquire, maintain, or enlarge such power. The problem here is that all sorts of procompetitive, consumer-friendly conduct is literally exclusionary. If Acme Inc. builds a better mousetrap than its rivals or lowers its price relative to their’s, it will usurp business from those rivals, thereby “excluding” them from the market. Surely, though, price-cuts and quality improvements — even those by a monopolist — should not be condemned. Thus, courts have struggled to articulate a standard for unreasonably exclusionary conduct.
The leading judicial definition of exclusionary conduct is from the Grinnell case, in which the Court defined exclusionary conduct as “the willful acquisition or maintenance of [monopoly] power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.†But what is “willful†acquisition of monopoly power? Practically every firm “wills†to beat out its rivals and thereby attain monopoly power. Recognizing as much, courts have sometimes referred to exclusionary conduct as conduct other than “competition on the merits.†But what exactly is that? As Einer Elhauge has argued, these verbal formulae are simply vacuous.
For that reason, a generalized definition of exclusionary conduct has become the Holy Grail for antitrust scholars. So far, four contenders have emerged as most promising: (1) Judge Posner’s “equally efficient rival” test, (2) Post-Chicago theorists’ “raising rivals costs unjustifiably” approach, (3) the Areeda-Hovenkamp treatise’s consumer welfare balancing approach, and (4) the Justice Department’s “profit sacrifice” or “no economic sense” approach. [Note that these attributions are not exclusive; other theorists besides those mentioned have crafted and/or endorsed these various definitions of exclusionary conduct.]
In a paper I’ve written for the Cato Supreme Court Review and will post to SSRN presently, I argue that Weyerhaeuser takes sides in the debate over a generalized definition of exclusionary conduct under Section 2. Specifically, I contend (1) that the Weyerhaeuser Court implicitly endorsed Judge Posner’s “equally efficient rival” definition of exclusionary conduct and rejected the other leading contenders and (2) that this is a salutary development.
Below the fold, I will briefly summarize my first point, which is essentially descriptive. In a subsequent post, I’ll summarize my normative defense of the Court’s endorsement of the equally efficient rival test. Read the rest of this entry »
Posted in antitrust, economics, law and economics, markets, regulation | 1 Comment »
