In a California Bar Journal, Professor Chemerinsky documents what he describes as the Supreme Court’s “sharp turn to the right.” Ted Frank describes Chemerinsky’s review of the term as “not especially honest” and discusses a few cases there. So what does Chemerinsky make of the recent antitrust decisions? Your hint is that the section is titled: “The Supreme Court favors business over consumers and employees.” Ted Frank doesn’t like this description at all because “we all know darn well that many “pro-business” legal rules favor consumers and employees as a group ex ante.”  I don’t like the description either and expand on Ted’s theme here a little bit below the fold.
Archive for August, 2007
Chemerinksy's Theory of the Roberts' Court's Antitrust Jurisprudence
Posted by Josh Wright on August 15, 2007
Posted in antitrust, business, regulation | 1 Comment »
How to Survive A Motion to Dismiss After Twombly
Posted by Josh Wright on August 12, 2007
David Fischer at Antitrust Review points to a decision out of the Eastern District of Pennsylvania where plaintiffs’ allegations of conspiracy in violation of Section 1 of the Sherman Act survived a motion to dismiss. Recall that Twombly rejected the “any set of facts” or “conceivability” standard set forth in Conley v. Gibson in favor of a “plausibility” standard (see, e.g. Manfred Gabriel’s article in the Antitrust Source exploring Twombly‘s implications).
So what sort of activity was alleged in the complaint that allowed the plaintiff class in In Re: OSB Litigation to survive the pleading stage? Judge Diamond points to a few features of the complaint that are worth exploring:
- Plaintiffs explicitly alleged communications between rivals announcing an intention to shutdown North American OSB mills and reduce output
- Plaintiffs detail that the same communication was later repeated by one of the defendants
- Plaintiffs allege communications between competitors followed directly by a reduction in production during a time period when demand was increasing
- Plaintiffs allege that prices increased to a record high level subsequent to these communications and reduction in production
- Importantly, thePlaintiffs also described in detail the mechanism by which the collusion was to take place. Specifically, the complaint contained allegations describing the use of a twice-weekly published price list in an industry periodical which included OSB prices by region and allowed conspirators to monitor competitors and detect cheating
This level of detail of the collusive agreement or conditions conducive to such an agreement are far greater than in Twombly. Specifically, the complaint in OSB features detailed allegations describing who was cartelizing what and how they were doing it appears to be a key feature of the new Twombly standard. The Horizontal Merger Guidelines provide a somewhat useful way to think about information that might describe the mechanism of collusion, and thus help to satisfy the Twombly standard, in Sections 2.11 and 2.12 which describe conditions conducive to both reaching a collusive agreement as well as detecting and punishing deviations — necessary components of a successful conspiracy.
OSB doesn’t appear to be a great test case for the scope of Twombly precisely because the allegations in the complaint are so detailed. A more interesting test case might involve Twombly-type allegations along with a “plus factor” or two. One important issue for district courts to grapple with involves the assignment of relative weights to various plus factors at the pleading stage for the purposes of “plausibility analysis.”
I am also interested to see if the post-Twombly world will involve extensive expert economic testimony at the pleading stage concerning the “plausibility” of collusion given market conditions (such as those described in the Guidelines in the coordinated effects context). There was obviously no such need here given allegations of an explicit agreement — but I would suspect that such expert testimony and economic analysis will likely play a greater role in these cases at the pleading stage.
Posted in antitrust, markets, mergers & acquisitions, regulation | 1 Comment »
Symposium on Empirical Antitrust in the Antitrust Law Journal
Posted by Josh Wright on August 9, 2007
The application of empirical economic methods in antitrust can and should play an important, even central, role in the development of sound competition policy. For example, former FTC Chairman Tim Muris explicitly made the case that empirical examination of the economic foundations of antitrust could improve antitrust policy making and undertook efforts to make such an examination a fundamental part of the FTC’s research agenda:
Economics tells us that monopoly can be “bad,” but that is the “easy” part. How do we know when we have a monopoly? How do we know which conduct by a monopolist is “bad?” Even when we know it is “bad,” what can we do about it? The efficient administration of statutes against monopolies, or trusts, requires presumptions, preferably ones with sound empirical support. The contribution of economics in this regard is improving. Especially over the past few decades, economics had a critical role in correctly characterizing the state of competition in the U.S. economy and therefore in guiding the presumptions used in antitrust policy and litigation.
I am a firm believer in the importance of empirical work to the antitrust mission. In that light, I was extremely pleased to be a part of the symposium featured in the newest issue of the Antitrust Law Journal (Volume 74, Issue 2) on The Application of Empirical Economics to Antitrust. The symposium was organized by Keith Hylton and I think the final product is well worth reading (with many thanks to the ALJ editors!).
The symposium features the following articles:
- Keith N. Hylton & Fei Deng, Antitrust Around the World: An Empirical Analysis of the Scope of Competition Laws and Their Effects
- Margaret C. Levinson and Valerie Y. Suslow, The Economic Impact of the U.S. Export Trading Company Act
- Jerry A. Hausman and J. Gregory Sidak, Evaluating Market Power Using Competitive Benchmark Prices Rather than the Herfindahl-Hirschman Index
- Roger D. Blair, James Mak and Carl Bonham, Collusive Duopoly: The Economic Effects of the Aloha and Hawaiian Airlines’ Agreement to Reduce Capacity
- My own article on Slotting Contracts and Consumer WelfareÂ
I’ve linked to the SSRN versions of these pieces where I could find them for those interested.
Posted in antitrust, economics, federal trade commission, legal scholarship, regulation, scholarship | Comments Off
Backdating stock options is a crime? Go figure.
Posted by Elizabeth Nowicki on August 8, 2007
Yesterday, Former Brocade CEO Steve Reyes was convicted of all criminal charges brought against him in the Brocade backdating scandal. (The ten charges included fraud, conspiracy, lying to the SEC, falsifying books, etc.) I am thrilled. Professor Larry Ribstein is not.
To remind you, backdating stock options basically means lying and maintaining that stock options were granted on a date that they were not. Backdating stock options is a bad thing for many reasons, not the least of which is because it usually is contrary to the terms of the stock option plan at issue (the plan approved by stockholders). Moreover, backdating stock options implies that the options are ultimately not accounted for correctly, such that investors are misled as to the true “cost†(paper or otherwise) of the options and the financial condition of the corporation. While we could argue about the actual impact backdating has on a corporation’s financial picture, the upshot is that backdating options and accounting for them accordingly is deceitful.
Regarding the Reyes jury verdict, I am thrilled because the jury verdict makes clear to former CEO Reyes and, by example, senior management of corporations in general that lying to investors about matters relevant to their securities is not acceptable. Moreover, the jury rejected Reyes’s argument that he did not commit fraud because he did not know that backdating was illegal (indeed, there was some speculation that Reyes’s attorney would call Larry Sonsini to the stand to try to point the finger at him for blessing the backdating). That, to me, is a huge step in tagging corporate executives with the responsibility of actually knowing enough about accurate accounting to be able to actually accurately account.
But, as noted, Professor Larry Ribstein was not similarly elated. Professor Ribstein opined that that “The thought of more of these misguided criminal prosecutions of backdating is disturbing, to put it mildly.” Professor Ribstein went on to say “These problems with criminalization of backdating are especially striking in a case like Brocade, where the defendant was trying to maximize shareholder value by recruiting the best people, not line his pockets, and where it’s unlikely any misstatements hurt investors….” Well, that’s a non sequitur. Breaking the law is breaking the law. Who *cares* whether Reyes was trying to benefit himself, the Pope, or the investors? AAT&T v. Miller, loosely paraphrased: “Don’t break the law, even if you are doing it to try to benefit the corporation.â€Â (What if Reyes hired prostitutes or gave out cocaine to entice the best possible people to come work for Brocade? Would that be acceptable? Of course not.)
After scary verdicts like these (“scary†meaning even mildly imposing accountability), the big law firms often send out memos to their corporate and management clients, explaining the legal impact or import. Allow me to draft the memo to clients on this one:
Don’t lie to investors. Don’t lie to the government. Don’t lie to the corporate auditors/accountants. Follow the rules. Don’t break the law.
******Question for the fed courts wonks out there:Â the 29 motion is still open, such that the judge could, in theory, set aside the verdict, yes?
Posted in Uncategorized | 5 Comments »
Zywicki on the Two-Income Trap Hypothesis
Posted by Josh Wright on August 6, 2007
My colleague Todd Zywicki offers an empirical rebuttal to the Warren-Tyagi “Two Income Trap” hypothesis which asserts that families with two incomes end up more leveraged than families with single incomes and more susceptible to negative economic shocks than otherwise for a number of reasons, including, e.g. counterproductive bidding for housing, child care expenses, etc. The hypothesis is designed, in part, to explain the increase in bankruptcy filings in the US during the 1980s and 90s. After a bit of number crunching, Zywicki concludes that the largest difference between the typical family in 1970 and 2000 is the tax burden not the mortgage expenses:
expenses for health insurance, mortgage, and automobile, have actually declined as a percentage of the household budget. Child care is a new expense. But even this new expenditure is about a quarter less than the increase in taxes. Moreover, unlike new taxes and the child care expenses incurred to pay them, increases in the cost of housing and automobiles are offset by increases in the value of real and personal property as household assets that are acquired in exchange.
Overall, the typical family in the 2000s pays substantially more in taxes than in their mortgage, automobile expenses, and health insurance costs combined. And the growth in the tax obligation between the two periods is substantially greater the growth in mortgage, automobile expenses, and health insurance costs combined.
Interesting stuff.
Posted in bankruptcy, economics, legal scholarship, parenting, personal finance | Comments Off
Shelf Space Payments and Retail Bargaining Power
Posted by Josh Wright on August 6, 2007
At his new blog Management R&D, Luke Froeb writes about the strategy of downstream firms reducing capacity in order to increase competition among suppliers:
To gain bargaining power, some firms reduce capacity to increase competition among their suppliers. For example, health insurers restrict the number of drugs on their formularies or the number of hospitals in their network to to increase competition among health care providers to get onto the formulary or into the network. Similarly, grocery stores limit shelf space to extract bigger payments from the brands they do carry; and airports limit the availability of gates or runways to encourage competition among airlines for gates or landing slots.
I don’t know much about the use of this strategy in other settings, but I’ve looked quite a bit at shelf space contracts in supermarkets and I don’t think a reduction in downstream capacity is the best way to understand shelf space payments conceptually. Froeb is referencing a variant of the argument that shelf space payments are explained by retail bargaining power. The argument is made in the FTC Report on slotting and is quite common in the marketing literature concerning shelf space payments generally. So, do grocery stores really limit shelf space to extract bigger payments? Ben Klein and I address this argument in The Economics of Slotting Contracts (forthcoming in JLE this month).  Our answer: No (with an important caveat I’ll talk about at the end of this post). At least not in the sense meant here, i.e. that slotting fees are a function of supermarkets extracting rents from manufacturers as a result of increased bargaining power.Â
A detailed explanation appears below the fold.
Posted in antitrust, business, economics, law and economics, markets | Comments Off
Antitrust in China
Posted by Josh Wright on August 5, 2007
It appears that China may be very close to passing its Anti-Monopoly Law (HT: Danny Sokol). Like many others, I’ve been following these developments (see, e.g., the ABA’s comments on the proposed law here). I will also be taking a trip out to China sometime later this year and so am interested in learning as much as possible about antitrust regulation in China as it occurs now as well as obstacles to its implementation under the new revised law. Along those lines, I recently read two quite informative papers and thought I would post the links here for those interested:
- Bruce M. Owen, Su Sun, and and Wentong Zheng, China’s Competition Policy Reforms: The Antimonopoly Law and Beyond (Stanford Institute for Economic Policy Research Working Paper).
- Eleanor M. Fox, An Anti-Monopoly Law for China — Scaling the Walls of Protectionist Government Restraints (published in the Antitrust L.J.)
See also China Law Prof Blog. If anybody has recommendations regarding informative material on these topics, please leave them in the comments or e-mail me.
Posted in antitrust, legal scholarship, markets, regulation | 1 Comment »
This is Bad News for GMU
Posted by Josh Wright on August 1, 2007
From Brian Leiter:
Vernon Smith, a seminal figure in “experimental economics,” whose work has also been influential in behavioral law and economics scholarship over the past decade, is moving with his research team from George Mason University to Chapman University. Smith’s joint appointments will include one in the Law School there.
Wow. This is a coup for Chapman and more importantly (at least to me!), a major loss for GMU.
Posted in economics, law and economics, law school, markets, universities | 1 Comment »
