I remain deeply skeptical of any antitrust challenge to the AT&T/Time Warner merger.  Vertical mergers like this one between a content producer and a distributor are usually efficiency-enhancing.  The theories of anticompetitive harm here rely on a number of implausible assumptions — e.g., that the combined company would raise content prices (currently set at profit-maximizing levels so that any price increase would reduce profits on content) in order to impair rivals in the distribution market and enhance profits there.  So I’m troubled that DOJ seems poised to challenge the merger.

I am, however, heartened — I think — by a speech Assistant Attorney General Makan Delrahim recently delivered at the ABA’s Antitrust Fall Forum. The crux of the speech, which is worth reading in its entirety, was that behavioral remedies — effectively having the government regulate a merged company’s day-to-day business decisions — are almost always inappropriate in merger challenges.

That used to be DOJ’s official position.  The Antitrust Division’s 2004 Remedies Guide proclaimed that “[s]tructural remedies are preferred to conduct remedies in merger cases because they are relatively clean and certain, and generally avoid costly government entanglement in the market.”

During the Obama administration, DOJ changed its tune.  Its 2011 Remedies Guide removed the statement quoted above as well as an assertion that behavioral remedies would be appropriate only in limited circumstances.  The 2011 Guide instead remained neutral on the choice between structural and conduct remedies, explaining that “[i]n certain factual circumstances, structural relief may be the best choice to preserve competition.  In a different set of circumstances, behavioral relief may be the best choice.”  The 2011 Guide also deleted the older Guide’s discussion of the limitations of conduct remedies.

Not surprisingly in light of the altered guidance, several of the Obama DOJ’s merger challenges—Ticketmaster/Live Nation, Comcast/NBC Universal, and Google/ITA Software, for example—resulted in settlements involving detailed and significant regulation of the combined firm’s conduct.  The settlements included mandatory licensing requirements, price regulation, compulsory arbitration of pricing disputes with recipients of mandated licenses, obligations to continue to develop and support certain products, the establishment of informational firewalls between divisions of the merged companies, prohibitions on price and service discrimination among customers, and various reporting requirements.

Settlements of such sort move antitrust a long way from the state of affairs described by then-professor Stephen Breyer, who wrote in his classic book Regulation and Its Reform:

[I]n principle the antitrust laws differ from classical regulation both in their aims and in their methods.  The antitrust laws seek to create or maintain the conditions of a competitive marketplace rather than replicate the results of competition or correct for the defects of competitive markets.  In doing so, they act negatively, through a few highly general provisions prohibiting certain forms of private conduct.  They do not affirmatively order firms to behave in specified ways; for the most part, they tell private firms what not to do . . . .  Only rarely do the antitrust enforcement agencies create the detailed web of affirmative legal obligations that characterizes classical regulation.

I am pleased to see Delrahim signaling a move away from behavioral remedies.  As Alden Abbott and I explained in our article, Recognizing the Limits of Antitrust: The Roberts Court Versus the Enforcement Agencies,

[C]onduct remedies present at least four difficulties from a limits of antitrust perspective.  First, they may thwart procompetitive conduct by the regulated firm.  When it comes to regulating how a firm interacts with its customers and rivals, it is extremely difficult to craft rules that will ban the bad without also precluding the good.  For example, requiring a merged firm to charge all customers the same price, a commonly imposed conduct remedy, may make it hard for the firm to serve clients who impose higher costs and may thwart price discrimination that actually enhances overall market output.  Second, conduct remedies entail significant direct implementation costs.  They divert enforcers’ attention away from ferreting out anticompetitive conduct elsewhere in the economy and require managers of regulated firms to focus on appeasing regulators rather than on meeting their customers’ desires.  Third, conduct remedies tend to grow stale.  Because competitive conditions are constantly changing, a conduct remedy that seems sensible when initially crafted may soon turn out to preclude beneficial business behavior.  Finally, by transforming antitrust enforcers into regulatory agencies, conduct remedies invite wasteful lobbying and, ultimately, destructive agency capture.

The first three of these difficulties are really aspects of F.A. Hayek’s famous knowledge problem.  I was thus particularly heartened by this part of Delrahim’s speech:

The economic liberty approach to industrial organization is also good economic policy.  F. A. Hayek won the 1974 Nobel Prize in economics for his work on the problems of central planning and the benefits of a decentralized free market system.  The price system of the free market, he explained, operates as a mechanism for communicating disaggregated information.  “[T]he ultimate decisions must be left to the people who are familiar with the[] circumstances.”  Regulation, I humbly submit in contrast, involves an arbiter unfamiliar with the circumstances that cannot possibly account for the wealth of information and dynamism that the free market incorporates.

So why the reservation in my enthusiasm?  Because eschewing conduct remedies may result in barring procompetitive mergers that might have been allowed with behavioral restraints.  If antitrust enforcers are going to avoid conduct remedies on Hayekian and Public Choice grounds, then they should challenge a merger only if they are pretty darn sure it presents a substantial threat to competition.

Delrahim appears to understand the high stakes of a “no behavioral remedies” approach to merger review:  “To be crystal clear, [having a strong presumption against conduct remedies] cuts both ways—if a merger is illegal, we should only accept a clean and complete solution, but if the merger is legal we should not impose behavioral conditions just because we can do so to expand our power and because the merging parties are willing to agree to get their merger through.”

The big question is whether the Trump DOJ will refrain from challenging mergers that do not pose a clear and significant threat to competition and consumer welfare.  On that matter, the jury is out.

My new book, How to Regulate: A Guide for Policymakers, is now available on Amazon.  Inform Santa!

The book, published by Cambridge University Press, attempts to fill what I think is a huge hole in legal education:  It focuses on the substance of regulation and sets forth principles for designing regulatory approaches that will maximize social welfare.

Lawyers and law professors obsess over process.  (If you doubt that, sit in on a law school faculty meeting sometime!) That obsession may be appropriate; process often determines substance.  Rarely, though, do lawyers receive training in how to design the substance of a rule or standard to address some welfare-reducing defect in private ordering.  That’s a shame, because lawyers frequently take the lead in crafting regulatory approaches.  They need to understand (1) why the unfortunate situation is occurring, (2) what options are available for addressing it, and (3) what are the downsides to each of the options.

Economists, of course, study those things.  But economists have their own blind spots.  Being unfamiliar with legal and regulatory processes, they often fail to comprehend how (1) government officials’ informational constraints and (2) special interests’ tendency to manipulate government power for private ends can impair a regulatory approach’s success.  (Economists affiliated with the Austrian and Public Choice schools are more attuned to those matters, but their insights are often ignored by the economists advising on regulatory approaches — see, e.g., the fine work of the Affordable Care Act architects.)

Enter How to Regulate.  The book endeavors to provide economic training to the lawyers writing rules and a sense of the “limits of law” to the economists advising them.

The book begins by setting forth an overarching goal for regulation (minimize the sum of error and decision costs) and a general plan for achieving that goal (think like a physician–identify the adverse symptom, diagnose the disease, consider the range of available remedies, and assess the side effects of each).  It then marches through six major bases for regulating: externalities, public goods, market power, information asymmetry, agency costs, and the cognitive and volitional quirks observed by behavioral economists.  For each of those bases for regulation, the book considers the symptoms that might justify a regulatory approach, the disease causing those symptoms (i.e., the underlying economics), the range of available remedies (the policy tools available), and the side effects of each (e.g., public choice concerns, mistakes from knowledge limitations).

I have been teaching How to Regulate this semester, and it’s been a blast.  Unfortunately, all of my students are in their last year of law school.  The book would be most meaningful, I think, to an upcoming second-year student.  It really lays out the basis for a number of areas of law beyond the common law:  environmental law, antitrust, corporate law, securities regulation, food labeling laws, consumer protection statutes, etc.

I was heartened to receive endorsements from a couple of very fine thinkers on regulation, both of whom have headed the Office of Information and Regulatory Affairs (the White House’s chief regulatory review body).  They also happen to occupy different spots on the ideological spectrum.

Judge Douglas Ginsburg of the D.C. Circuit wrote that the book “will be valuable for all policy wonks, not just policymakers.  It provides an organized and rigorous framework for analyzing whether and how inevitably imperfect regulation is likely to improve upon inevitably imperfect market outcomes.”

Harvard Law School’s Cass Sunstein wrote:  “This may well be the best guide, ever, to the regulatory state.  It’s brilliant, sharp, witty, and even-handed — and it’s so full of insights that it counts as a major contribution to both theory and practice.  Indispensable reading for policymakers all over the world, and also for teachers, students, and all those interested in what the shouting is really about.”

Bottom line:  There’s something for everybody in this book.  I wrote it because I think the ideas are important and under-studied.  And I really tried to make it as accessible (and occasionally funny!) as possible.

If you’re a professor and would be interested in a review copy for potential use in a class, or if you’re a potential reviewer, shoot me an email and I’ll request a review copy for you.

Canada’s large merchants have called on the government to impose price controls on interchange fees, claiming this would benefit not only merchants but also consumers. But experience elsewhere contradicts this claim.

In a recently released Macdonald Laurier Institute report, Julian Morris, Geoffrey A. Manne, Ian Lee, and Todd J. Zywicki detail how price controls on credit card interchange fees would result in reduced reward earnings and higher annual fees on credit cards, with adverse effects on consumers, many merchants and the economy as a whole.

This study draws on the experience with fee caps imposed in other jurisdictions, highlighting in particular the effects in Australia, where interchange fees were capped in 2003. There, the caps resulted in a significant decrease in the rewards earned per dollar spent and an increase in annual card fees. If similar restrictions were imposed in Canada, resulting in a 40 percent reduction in interchange fees, the authors of the report anticipate that:

  1. On average, each adult Canadian would be worse off to the tune of between $89 and $250 per year due to a loss of rewards and increase in annual card fees:
    1. For an individual or household earning $40,000, the net loss would be $66 to $187; and
    2. for an individual or household earning $90,000, the net loss would be $199 to $562.
  2. Spending at merchants in aggregate would decline by between $1.6 billion and $4.7 billion, resulting in a net loss to merchants of between $1.6 billion and $2.8 billion.
  3. GDP would fall by between 0.12 percent and 0.19 percent per year.
  4. Federal government revenue would fall by between 0.14 percent and 0.40 percent.

Moreover, tighter fee caps would “have a more dramatic negative effect on middle class households and the economy as a whole.”

You can read the full report here.

On November 10, at the University of Southern California Law School, Assistant Attorney General for Antitrust Makan Delrahim delivered an extremely important policy address on the antitrust treatment of standard setting organizations (SSOs).  Delrahim’s remarks outlined a dramatic shift in the Antitrust Division’s approach to controversies concerning the licensing of standard essential patents (SEPs, patents that “read on” SSO technical standards) that are often subject to “fair, reasonable, and non-discriminatory” (FRAND) licensing obligations imposed by SSOs.  In particular, while Delrahim noted the theoretical concerns of possible “holdups” by SEP holders (when SEP holders threaten to delay licensing until their royalty demands are met), he cogently explained why the problem of “holdouts” by implementers of SEP technologies (when implementers threaten to under-invest in the implementation of a standard, or threaten not to take a license at all, until their royalty demands are met) is a far more serious antitrust concern.  More generally, Delrahim stressed the centrality of patents as property rights, and the need for enforcers not to interfere with the legitimate unilateral exploitation of those rights (whether through licensing, refusals to license, or the filing of injunctive actions).  Underlying Delrahim’s commentary is the understanding that innovation is vitally important to the American economy, and the concern that antitrust enforcers’ efforts in recent years have threatened to undermine innovation by inappropriately interfering in free market licensing negotiations between patentees and licensees.

Important “takeaways” from Delrahim’s speech (with key quotations) are set forth below.

  • Thumb on the scale in favor of implementers: “In particular, I worry that we as enforcers have strayed too far in the direction of accommodating the concerns of technology implementers who participate in standard setting bodies, and perhaps risk undermining incentives for IP creators, who are entitled to an appropriate reward for developing break-through technologies.”
  • Striking the right balance through market forces (as opposed to government-issued best practices): “The dueling interests of innovators and implementers always are in tension, and the tension is resolved through the free market, typically in the form of freely negotiated licensing agreements for royalties or reciprocal licenses.”
  • Holdup as theoretical concern with no evidence that it’s a systemic or widespread problem: He praises Professor Carl Shapiro for his theoretical model of holdup, but stresses that “many of the proposed [antitrust] ‘solutions’ to the hold-up problem are often anathema to the policies underlying the intellectual property system envisioned by our forefathers.”
  • Rejects prior position that antitrust is only concerned with the patent-holder side of the holdup equation, stating that he’s more concerned with holdout given the nature of investments: “Too often lost in the debate over the hold-up problem is recognition of a more serious risk:  the hold-out problem. . . . I view the collective hold-out problem as a more serious impediment to innovation.  Here is why: most importantly, the hold-up and hold-out problems are not symmetric.  What do I mean by that?  It is important to recognize that innovators make an investment before they know whether that investment will ever pay off.  If the implementers hold out, the innovator has no recourse, even if the innovation is successful.  In contrast, the implementer has some buffer against the risk of hold-up because at least some of its investments occur after royalty rates for new technology could have been determined.  Because this asymmetry exists, under-investment by the innovator should be of greater concern than under-investment by the implementer.”
  • What’s at stake: “Every incremental shift in bargaining leverage toward implementers of new technologies acting in concert can undermine incentives to innovate.  I therefore view policy proposals with a one-sided focus on the hold-up issue with great skepticism because they can pose a serious threat to the innovative process.”
  • Breach of FRAND as primarily a contract or fraud, not antitrust issue: “There is a growing trend supporting what I would view as a misuse of antitrust or competition law, purportedly motivated by the fear of so-called patent hold-up, to police private commitments that IP holders make in order to be considered for inclusion in a standard.  This trend is troublesome.  If a patent holder violates its commitments to an SSO, the first and best line of defense, I submit, is the SSO itself and its participants. . . . If a patent holder is alleged to have violated a commitment to a standard setting organization, that action may have some impact on competition.  But, I respectfully submit, that does not mean the heavy hand of antitrust necessarily is the appropriate remedy for the would-be licensee—or the enforcement agency.  There are perfectly adequate and more appropriate common law and statutory remedies available to the SSO or its members.”
  • Recommends that unilateral refusals to license should be per se lawful: “The enforcement of valid patent rights should not be a violation of antitrust law.  A patent holder cannot violate the antitrust laws by properly exercising the rights patents confer, such as seeking an injunction or refusing to license such a patent.  Set aside whether taking these actions might violate the common law.  Under the antitrust laws, I humbly submit that a unilateral refusal to license a valid patent should be per se legal.  Indeed, just this Monday, Chief Judge Diane Wood, a former Deputy Assistant Attorney General at the Antitrust Division, stated that “[e]ven monopolists are almost never required to assist their competitors.”
  • Intent to investigate buyers’ cartel behavior in SSOs: “The prospect of hold-out offers implementers a crucial bargaining chip.  Unlike the unilateral hold-up problem, implementers can impose this leverage before they make significant investments in new technology.  . . . The Antitrust Division will carefully scrutinize what appears to be cartel-like anticompetitive behavior among SSO participants, either on the innovator or implementer side.  The old notion that ‘openness’ alone is sufficient to guard against cartel-like behavior in SSOs may be outdated, given the evolution of SSOs beyond strictly objective technical endeavors. . . . I likewise urge SSOs to be proactive in evaluating their own rules, both at the inception of the organization, and routinely thereafter.  In fact, SSOs would be well advised to implement and maintain internal antitrust compliance programs and regularly assess whether their rules, or the application of those rules, are or may become anticompetitive.”
  • Basing royalties on the “smallest salable component” as a requirement by a concerted agreement of implementers is a possible antitrust violation: “If an SSO pegs its definition of “reasonable” royalties to a single Georgia-Pacific factor that heavily favors either implementers or innovators, then the process that led to such a rule deserves close antitrust scrutiny.  While the so-called ‘smallest salable component’ rule may be a useful tool among many in determining patent infringement damages for multi-component products, its use as a requirement by a concerted agreement of implementers as the exclusive determinant of patent royalties may very well warrant antitrust scrutiny.”
  • Right to Injunctive Relief and holdout incentives: “Patents are a form of property, and the right to exclude is one of the most fundamental bargaining rights a property owner possesses.  Rules that deprive a patent holder from exercising this right—whether imposed by an SSO or by a court—undermine the incentive to innovate and worsen the problem of hold-out.  After all, without the threat of an injunction, the implementer can proceed to infringe without a license, knowing that it is only on the hook only for reasonable royalties.”
  • Seeking or Enforcing Injunctive Relief Generally a Contract Not Antitrust Issue: “It is just as important to recognize that a violation by a patent holder of an SSO rule that restricts a patent-holder’s right to seek injunctive relief should be appropriately the subject of a contract or fraud action, and rarely if ever should be an antitrust violation.”
  • FRAND is Not a Compulsory Licensing Scheme: “We should not transform commitments to license on FRAND terms into a compulsory licensing scheme.  Indeed, we have had strong policies against compulsory licensing, which effectively devalues intellectual property rights, including in most of our trade agreements, such as the TRIPS agreement of the WTO.  If an SSO requires innovators to submit to such a scheme as a condition for inclusion in a standard, we should view the SSO’s rule and the process leading to it with suspicion, and certainly not condemn the use of such injunctive relief as an antitrust violation where a contract remedy is perfectly adequate.”

I didn’t know Fred as well as most of the others who have provided such fine tributes here.  As they have attested, he was a first-rate scholar, an inspiring teaching, and a devoted friend.  From my own experience with him, I can add that he was deliberate about investing in the next generation of market-oriented scholars.  I’m the beneficiary of that investment.

My first encounter with Fred came in 1994, when I was fresh out of college and working as a research fellow at Washington University’s Center for the Study of American Business.  I was trying to assess the common law’s effectiveness at dealing with the externalities that are now addressed through complex environmental statutes and regulations.  My longtime mentor, P.J. Hill, recommended that I call Fred for help.  Fred was happy to drop what he was doing in order to explain to an ignorant 22 year-old how the common law’s property rights-based doctrines could address a great many environmental problems.

After completing law school and a judicial clerkship, I took a one-year Olin Fellowship at Northwestern, where Fred was teaching.  Once again, he took time to help a newbie formulate ideas for articles and structure arguments.  But for the publications I produced at Northwestern, I probably couldn’t have landed a job teaching law.  And without Fred’s help, those publications wouldn’t have been nearly as strong.

A few years ago, Fred invited me to join as co-author of the fifth edition of his excellent antitrust casebook (co-authored with the magnificent Charlie Goetz).  How excited was I!  My initial excitement was over the opportunity to attach my name to two giants in the field.  What I didn’t realize at the time was how much I would learn from Fred and Charlie, both brilliant thinkers and lucid writers.

Fred and Charlie’s casebook continually emphasizes the decision-theoretic approach to antitrust – i.e., the view that antitrust rules and standards should be crafted so as to minimize the sum of error and decision costs.  As I worked on the casebook, my understanding of that regulatory approach deepened.  My recently published book, How to Regulate, extends the approach outside the antitrust context.

But for the experience working with Fred and Charlie on their casebook, I may never have recognized the broad applicability of the error cost approach to regulation, and I may never have completed How to Regulate.

In real life, people don’t get the sort of experience George Bailey had in It’s a Wonderful Life.  We never learn what people would have been like had we not influenced them.  I know for sure, though, that I would not be where I am today without Fred McChesney’s willingness to help me along the way.  I am most grateful.

This week, the International Center for Law & Economics filed an ex parte notice in the FCC’s Restoring Internet Freedom docket. In it, we reviewed two of the major items that were contained in our formal comments. First, we noted that

the process by which [the Commission] enacted the 2015 [Open Internet Order]… demonstrated scant attention to empirical evidence, and even less attention to a large body of empirical and theoretical work by academics. The 2015 OIO, in short, was not supported by reasoned analysis.

Further, on the issue of preemption, we stressed that

[F]ollowing the adoption of an Order in this proceeding, a number of states may enact their own laws or regulations aimed at regulating broadband service… The resulting threat of a patchwork of conflicting state regulations, many of which would be unlikely to further the public interest, is a serious one…

[T]he Commission should explicitly state that… broadband services may not be subject to certain forms of state regulations, including conduct regulations that prescribe how ISPs can use their networks. This position would also be consistent with the FCC’s treatment of interstate information services in the past.

Our full ex parte comments can be viewed here.

Todd J. Zywicki is a George Mason University Foundation Professor of Law at the Scalia Law School at George Mason University and a former Director of the Office of Policy Planning at the FTC.

I was saddened to read of the passing of my dear friend Fred McChesney. An amazing scholar and an even more amazing friend and perhaps the greatest storyteller I’ve ever met. He is largely responsible for me going into law & economics and eventually the academic profession.

When I was deciding whether to pursue my Masters Degree in Economics at Clemson, Roger Meiners connected me with Fred. Fred was by then at Emory and already an established titan of law & economics. Fred had never taught at Clemson, but knew many of the Clemson professors through the Manne law & economics network. I cold-called him at Roger’s suggestion and much to my delight and (now) surprise, we must’ve talked for 30 minutes as he told me all about Clemson and law & economics. That seeming digression changed my life, leading me to UVA as an Olin Fellow and eventually to GMU. If Henry Manne is my intellectual grandfather then Fred McChesney and the crew at Clemson who passed that tradition on to me are my intellectual fathers.

My initial conversation with Fred embodies the spirit of the man — he was already an academic star with an immensely high opportunity cost. And here I was asking him for advice about seeking an MA at a completely different school. Yet rather than brush me off or rush through a hurried conversation, he was eminently patient and helpful. Only when I later became a professor did I realize how rare it was to find a man of his humility and friendliness in the academic profession. Every encounter with Freed from then on had the same spirit.

As for Fred’s intellectual influence on me, that is hard to overstate. Several years ago I published a co-authored book on “Public Choice Concepts and Applications in Law.” The book, of course, discusses Fred’s profound work on “rent-extraction,” one of the most important refinements of public choice theory since its origins. Even better, many years later, when I became Executive Director of the Law & Economics Center, I had the opportunity to organize Law Professor Workshops on Public Choice, at which Fred was one of our star speakers. The professors in attendance invariably left informed — and amused — by Fred’s lectures. As did I!

I always looked forward with anticipation to my meetings with Fred — I’m going to miss him greatly.

David Haddock is Professor of Law and Professor of Economics at Northwestern University and a Senior Fellow Emeritus at PERC.

The day Fred McChesney departed this life, the world lost an intelligent, enthusiastic, and intellectually rigorous scholar of law & economics. A great many of us also lost one of our most trusted and generous friends.

I first met Fred when Emory University, hoping to recruit the then young scholar to the law school faculty, brought him to Atlanta to deliver a research paper. The effort was successful, and Fred joined as an assistant professor in the fall of 1983. Jon Macey joined the law school, also as an entry-level assistant professor, at about the same time. A couple of years earlier Professor Bill Carney and law school Dean Tom Morgan had enticed Henry Manne to Emory to establish a new Law & Economics Center. Although Henry did not know me, upon Armen Alchian’s recommendation he persuaded me to leave Ohio State to join the LEC soon after it commenced operation.

I was only a bit older than Fred and Jon. Each of us had training in economics in addition to our interest in law. We shared a respect for markets. We had noticed how often special interests deflected government interventions away from the public interest that was the ostensible motivation. One might say we three had large Venn diagram intersections of background, interest, and outlook. Fred, Jon and I quickly became friends both at work and – along with our respective girlfriends and eventual wives – at leisure. We began to coauthor journal articles and book chapters, sometimes in pairs and sometimes as a trio.

Alas, though Chris Curran and Matt Lindsay from the economics department shared the law school’s enthusiasm for the LEC, the university administration proved decidedly lukewarm toward Manne’s ambitious blueprint. After flashing onto the national, or rather international, stage for a few bright years, the LEC began to atrophy in the face of limitations issuing from above.

Fred, Henry, Jon and I each spent time at the International Center for Economic Research in Torino, Italy, becoming friends with ICER’s director Enrico Colombatto. Macey moved to Cornell. I spent a year at Yale before returning to join Emory’s economics department. Manne left to become dean of a humble law school in the DC suburbs that had been devoted almost exclusively to teaching. Henry quickly transformed that school into a nationally recognized research and innovative teaching institution now known as the Antonin Scalia Law School of George Mason University, but his departure effectively ended the brief if illustrious history of the Emory LEC.

Fred and I visited the University of Chicago in 1987, and though I then moved directly to Northwestern where I finished my career, Fred returned to Emory for another ten years. The two of us continued to coauthor, sometimes with a third such as Bill Shughart, Terry Anderson, or Menahem Spiegel. I worked diligently to get Fred to Northwestern but Cornell succeeded first, though by then Macey had moved on to Yale. Two years later, Fred finally joined me at Northwestern where both he and Elaine held faculty positions until Elaine’s untimely death.

I have mentioned a number of people. Nearly all of those people have changed location, sometimes repeatedly. Through it all and across the deaths of Elaine, then Henry, and now Fred, we have all remained friends and often continued to work together, though usually at a distance.

Everyone who knew him remembers how easily Fred made friends upon meeting new people. Due to his extensive knowledge of rock music, Fred even became a telephone buddy of the late Casey Kasem, longtime host of the nationally syndicated America’s Top 40. Fred’s cordiality was not only social but extended into the work environment. He was no pushover, demanding careful thought in classroom and seminar, but he made his points calmly without endeavoring to cow or humiliate those with whom he disagreed, a trait that unfortunately is far from universal in the academic world.

Considering Fred’s passion for rock music, perhaps it is appropriate to end this remembrance with a few lightly edited lines from James Taylor’s Fire and Rain:

Just yesterday morning, they let me know you were gone.
The path laid down has put an end to you.
I walked out this morning and I wrote down this song,
I just can’t remember who to send it to.

Won’t you look down upon us, Jesus,
You’ve got to help us make a stand.
You’ve just got to see us through another day.
My body’s aching and my time is at hand and I won’t make it any other way.

Oh, I’ve seen fire and I’ve seen rain.
I’ve seen sunny days that I thought would never end.
I’ve seen lonely times when I could not find a friend,
but I always thought that I’d see you again.

Rest in peace, pal.

Richard Epstein is the Laurence A. Tisch Professor of Law at NYU School of Law, the Peter and Kirstin Bedford Senior Fellow at the Hoover Institution, and the James Parker Hall Distinguished Service Professor of Law Emeritus and a senior lecturer at the University of Chicago.

It was with much sadness that I learned of the all-too-early death of Fred McChesney, whom I have known since the time that he spent at the University of Chicago Law School in the early 1980s when he visited on our faculty. At the time, Fred was at the peak of his powers and he displayed a legal imagination and economic sophistication that few have been able to match, either before or since. Fred’s great skill was being able to take a tough-minded public choice perspective to just about any mundane problem that one might encounter, and then give the entire issue a spin that seemed improbable but made sense. In conversation he was a fount of intellectual energy who had an endless curiosity, and who exhibited a palpable sense of excitement whenever the discussion took an unexpected turn into unknown territory. Those were heady days together, and I still remember the many discussions that we had about Volunteer Fire Fighting in the Nineteenth Century and the wonderful article on the topic that he published with me in the Journal of Legal Studies. I am still grateful over 30 years later for the opportunity to work closely with him during his all too short stay at the University of Chicago.

Fred was a man of exceptionable energy and character.  But there was always a powerful disjunction between the way he carried himself, and the way in which he thought about the larger economic issues that dominated his intellectual life. Fred was not a man for needless subtlety in dealing with human nature. He was always one of the kindest and most communicative of colleagues, but he well understood that while these personal virtues have a great deal to do with the way in which good and honorable people lead their lives, they have far less to do with the way in which various actors, both private and public, act when their function in the political arena, where the stakes are far higher, and their own personal livelihood and success is on the table. In these settings, Fred was of the general view that the fine points washed out, and the dangers of factional politics loomed larger.  

Let me give one example. In his book Money for Nothing, the title expresses with his usual bluntness the dangers that he saw in public affairs. I am happy to report that I was still the editor of the Journal of Legal studies in 1987 when Fred published his widely-cited article Rent Extraction and Recreation Creation in the Economic Theory of Regulation. Like all great articles, Fred’s contribution in this paper had one great idea that seems obvious once it is stated, even if it had never been stated before. Fred well knew that the standard theory of regulation was how well-organized interest groups could pull the political levers in order to gain special favors from the government. He was indeed an ardent believer that actions like that did and could take place on a common basis. But Fred saw that the extraction game was a two-way street. The well-organized group that could extract benefits was also subject to extraction itself—precisely because it was so well organized. Politicians were aware of these possibilities and thus could propose what were called “milker bills” which threatened to impose taxes or regulations on a well-organized firm or industry unless they came across with some campaign contribution, direct or indirect, to the political power groups. Being well organized was a double-edged sword. Once the point is made it cannot be forgotten. The potential domain of political bargains does not have $0 as a lower bound. The payments in question can go in both directions.

Once this simple point is seen, the entire fabric of political negotiation has an extra dimension that we ignore at our peril. The use of this tool helped explain why Fred, with good reason, was so skeptical of so much of behavioral economics. The forces that he was talking about were so pervasive and so powerful that it is hardly likely that they could be displaced by behavioral anomalies, which, if they exist at all, are first found in the laboratory and then are rarely observed in nature. Fred was fond of saying that the behavioral issues were at best a second-order issue, an epicycle on the basic rational choice theory, upon which he was able to deploy neoclassical tools so effectively to explain away many of the more dramatic findings in a 2013 recent article that treated the subject as dealing with “Old Wine in Irrelevant New Bottles.”

Speaking about Fred’s affection with public choice does not negate his many other skills. When I taught antitrust law once some years ago, I gravitated to the book, now in its Fifth Edition, that Fred had prepared with Charles Goetz, which dealt with antitrust law, its interpretation and implementation. The book was an ideal teaching tool, for it understood that it was important to deal with the historical evolution of antitrust law along with its neoclassical foundations in economic theory. Teaching from the book was a pleasure, learning from it was a greater pleasure still.

It is a source of some comfort that Fred remained intellectually active throughout his entire career. It is a source of much sadness to know that he is no longer with us. May his memory be a blessing.

Paul Rubin is Samuel Candler Dobbs Professor of Economics at Emory University.

I first met Fred in about 1977, when I presented a paper at Miami and Fred was a student in the Law and Economics program. We thought alike and became friends immediately. After that, I saw Fred in Washington, when I worked at the FTC, and we were colleagues at Emory, where Fred had a joint appointment in Economics and Law. I was also on the Board of the Southern Economic Association two times (VP, 1995 and President, 2013) and Fred was of course the long-time General Counsel of the organization. In 1995, Fred was instrumental in an important change in the structure of the organization. Additionally, of course, we met at numerous meetings and conferences over the years, and Fred invited me to present papers at both Northwestern and Cornell. I always enjoyed Fred’s great if somewhat cynical wit. I knew that Fred’s health was deteriorating, but I was shocked and greatly saddened to learn of his death.

Fred was one of the first joint-degree Law and Economics scholars, and one of the best of his generation. All of Fred’s work was interesting. I found his paper “Commercial Speech in the Professions: The Supreme Court’s Unanswered Questions and Questionable Answers” (University of Pennsylvania Law Review, 1985) most directly useful in my own work, and I cited it several times. His work on rent extraction, including his Harvard University Press book, was of profound importance and was a fundamental contribution to Public Choice scholarship, and to the understanding of political behavior and institutions. I was also pleased to contribute a chapter to the book he edited with Bill Shughart, The Causes and Consequences of Antitrust.

The worlds of Law and Economics and of Public Choice have lost a great scholar, and many of us have lost a great friend.