ECONOMIC ANALYSIS AND "BRIGHT-LINE" TESTS

Economists testifying in antitrust cases often encounter thedemand by attorneys and judges for "bright-line" tests –simple rules supposedly based on economic analysis. This paperargues that, although such tests can have their uses, they arevery likely to lead to error without a clear understanding ofthe purposes of the tests and the economics behind them. Issuesdiscussed include: market definition, market share, the roleof profits, and, especially, anti-competitive conduct (includingthe Areeda-Turner) test for predatory pricing. Examples aredrawn from actual court cases (mostly in the U.S.), in manyof which the author was an expert witness. The best known ofthese was the U.S. case against Microsoft, but there are manyothers.     

Coasean markets

Coase’s work emphasized the economic importance of very small markets and made a new, more marginalist form of economic “institutionalism” acceptable within mainstream economics. A Coasean market is an association of persons with competing claims on a legal entitlement that can be traded. The boundaries of both Coasean markets and Coasean firms are determined by measuring not only the costs of bargaining but also the absolute costs of moving resources from one place to another. The boundaries of a Coasean market, just as those of the Coasean business firm, are defined by the line where the marginal cost of reaching a value-maximizing bargain by trading inside just equals the marginal cost of going outside. This focus on very small markets is a defining characteristic of modern Transaction Cost Economics. In analyzing such markets Coase ignored the eclectic, historical and behaviorist approach of the old institutionalists and applied the greater formalism and of marginal analysis. In the process, however, Coase assumed away important issues that the first generation of institutionalists were trying to address and created some new ones, such as how equilibrium is attained in Coasean as opposed to neoclassical markets. The most important difference between the two is that a Coasean market requires the unanimous consent of all participants before a trade can be made—a condition imposed by Coase’s own requirement of reciprocity, developed in The Problem of Social Cost (J Law Econ 3:1, 1960). The equilibrium problem is substantial but its significance has not been sufficiently developed. As a result, Coasean analysis of the business firm has made much more progress than has Cosean analysis of markets for legal entitlements. Further, the superiority of private governance over legislation, an important attribute of Coase’s argument, loses much of its force as the number of participants in Coasean markets increases beyond two. Research on the management of commons resources has contributed greatly to our understanding of when private resource allocation decisions by larger groups of owners succeed and when they fail. While not all common resources markets are of the kind contemplated by Coase they share many relevant characteristics. Further, the economic literature on private governance arrangements for the commons has found it necessary to step beyond the strict marginalist methodologies of Coasean economics and look more broadly to the historical, biological and social motivations for human cooperation.     

The Economic Problem of Fixed Costs and What Legal Research Can Contribute

The antitrust laws demand competition but, in general, no competitive outcome is possible in markets characterized by substantial fixed costs. Consequently, restrictions on competition may have an efficiency defense, and a prohibition of cartel agreements may entail costs as well as benefits. Giving examples, this essay illustrates the problem that fixed costs pose for competition, long recognized in economics, and discusses implications for real-world industries. The author addresses Wiley's recent criticism of theoretical and empirical work on the fixed cost problem and outlines an agenda for legal research that can help illuminate the underlying economic and antitrust policy issues posed by industries with high fixed costs.     

Fly by Night or Face the Music? Premature Dissolution and the Desirability of Extended Liability

Premature dissolution can be a rational corporate response tothe threat of future liability. Although early dissolution iscostly to a firm, liability may be more so. The way in whichliability rules can exacerbate this extreme form of liabilityavoidance is of interest, since "fly-by-night" firms generateparticularly large social costs. In particular, we explore theconsequences of liability that is extended to the business partnersof an insolvent or absent tortfeasor—a relatively commonlegal response when tortfeasors abandon obligations. Extendedliability can be desirable; however, if extended liability isanticipated, business partners themselves may choose to flyby night. We show how the preferred liability rule, includingno liability, depends on the relative costs of premature dissolutionand future obligations. The analysis also sheds light on a setof interrelated legal issues, such as the role of the trustfund doctrine and state dissolution statutes.     

Definition of "Terrorism" in the UN Security Council: 1985-2004

International debate about the problems of defining terrorismhistorically centred on the General Assembly. Yet, between 1985and 2001, the Security Council adopted a range of measures addressingterrorist threats to peace and security, and analysis of theincidents involved reveals much about the Council's understandingof "terrorism". After September 2001, problems of definitionbecame acute, since the Council adopted general legislativemeasures against terrorism—with serious legal consequences—withoutdefining it. The Council has encouraged States to unilaterallydefine terrorism in national law, permitting wide and divergentdefinitions. A non-binding Council definition of late 2004 failsto remedy the serious difficulties caused by the lack of anoperative definition in Council practice.     

专利创造性的经济学分析

专利创造性的主要经济学理论包括选择价值理论、连续发明理论、错误成本理论和互补发明理论.这些经济学理论对深入认识专利创造性提供了有益的视角,并能够对专利政策的制定以及专利创造性判断的司法实践提供帮助.分析表明,专利实践中的很多做法都暗含了这些理论分析所隐含的经济理性,但是由于经济学理论难以提供可操作性的工具,经济分析要为政策制定和创造性判断提供具体指导还需要进一步研究.     

Comment on Forni's "Using Stationarity Tests in Antitrust Market Definition"

Economic analyses of prospective mergers must typically be undertakenwith limited data. Often prices are the only available data,so it is tempting to use their time series alone. Certainly,simple and robust measures of the extent of the market basedon limited data would aid merger analysis immensely. However,a couple of examples show how Forni's suggested methodologycan lead one astray. Consider a differentiated products market with demand systemln D_i(p_i, p_j) = 1 – ln p_i + ln p_j, i, j = 1, 2, i j,with associated constant marginal costs c₁ = _t c, c₂     

WELFARE STANDARDS, SUBSTANTIVE TESTS, AND EFFICIENCY CONSIDERATIONS IN MERGER POLICY: DEFINING THE EFFICIENCY DEFENSE

For several years already, the efficiency defense (and its incorporationin the law) has been a much debated issue in merger policy.When discussing the introduction of an efficiency defense inmerger control, it is important to define clearly its contentand interpretation. However, different approaches to the conceptof efficiency defense exist in the literature, and it is notalways clear which jurisdictions apply an efficiency defense.Therefore, to improve communication and comparison between jurisdictions,it would be useful to reach agreement on the exact content ofan efficiency defense. This paper proposes to define the efficiencydefense along two dimensions: a conceptual one—relatedto the welfare standard—and a procedural one—relatedto the application of the substantive test. The main conclusionof this paper is that the concept of efficiency defense canonly be appropriately applied under a total welfare standardand if efficiencies can be directly balanced against the anticompetitiveeffects of mergers on a case-by-case basis. Using this definition,only in Canada and Australia (formal review process) would anefficiency defense exist.     

Competition by regulation in energy markets: the case of Turkey

A fundamental question facing the regulatory and competition authorities is whether to delegate competition policy issues of utilities to regulatory agencies or competition authorities. While, some countries prefer ‘light handed regulation’ by competition authorities, others grant substantial power to independent regulatory agencies. Turkey followed the liberalization wave in electricity with a regulatory reform in 2001. Recently, a slight shift of tide has appeared in previously liberalized markets. Electricity markets are the forefront example of this change of course. A similar trend is apparent in Turkey as well. Increasing pressures on prices and excess demand have created more reasons for active government involvement. As political factors weigh in, economic considerations take a secondary place in electricity markets. In order to show the tension between political and economic preferences, we use the Pareto and Kaldor-Hicks criteria of welfare economics metaphorically. This paper discusses the scope of competition policy in the Turkish electricity industry. We focus on the issue of regulatory governance. The absence of a well established institutional environment reduces the potential role of competition policy in the industry and increase political meddling in all segments of the Turkish electricity market. By looking into changes in prices, market power and new entry closely, we discuss the relative success of the regulatory reform in the electricity industry. We conclude by emphasizing the consequences of a passive competition authority in establishing a competitive electricity market.     

BIDDING MARKETS

The existence of a "bidding market" is commonly cited as a reasonto tolerate the creation or maintenance of highly concentratedmarkets. We discuss three erroneous arguments to that effect:the "consultants' fallacy" that "market power is impossible,"the "academics' fallacy" that (often) "market power does notmatter," and the "regulators' fallacy" that "intervention againstpernicious market power is unnecessary," in markets characterizedby auctions or bidding processes.Furthermore we argue that theterm "bidding market" as it is widely used in antitrust is unhelpfulor misleading. Auctions and bidding processes do have some specialfeatures—including their price formation processes, common-valuesbehavior, and bid-taker power—but the significance ofthese features has been overemphasized, and they often implya need for stricter rather than more lenient competition policy.     

Decision rules,membership and political centralization in the European Union

The decision to enter the European Union is based on a comparison of the costs of staying out and going it alone, and the costs membership. The latter depend on the degree of preference heterogeneity between prospective members and the Union as well as the decision rules employed for “constitutional” decisions. The same calculus guides the decision, by member states, to shift policies up to the Union level, only now the decision rules refer to centrally assigned policies. Preference heterogeneity makes more inclusive rules optimal in either case while at the same time reducing the attractiveness of membership or the centralization of policies to the EU level, respectively. The analysis complements and extends both traditional fiscal federalism literature as well as the more recent political economics literature on federalism.

The economic analysis of antitrust consents

Henry G. Manne, our friend, Mentor, and colleague, was a pioneer in the economic analysis of law. By consistently challenging the notion that existing institutions were well understood, he expanded the domain of economics to new and fertile ground. In that spirit, our goal in this article is to bring out of the shadows an institution that has thus far evaded the light of economic analysis: antitrust consents. In our view, competition authorities around the world should be asking themselves what ratio of litigation to settlement is optimal for their agency. Over the last 35 years, the United States Federal Trade Commission and the Antitrust Division of the Department of Justice have shifted dramatically toward greater reliance upon consent decrees than upon litigation to resolve antitrust disputes. As an aid to national competition agencies considering the desirability of adopting a similar approach, we focus upon the importance of economic analysis in evaluating movement along the continuum from a law enforcement model to a regulatory model of agency behavior. We draw upon the U.S. experience to substantiate our claim that the costs associated with a shift toward the regulatory model, including the potential distortion in the development of substantive antitrust doctrine, may be under-appreciated and discernable only in the long run. We acknowledge that consent decrees can and should be an important tool in an antitrust agency’s toolkit for resolving antitrust disputes. We contend, however, that a full economic analysis of reliance primarily upon consent decrees is necessary to inform each competition agency’s strategic decision about the optimal mix of law enforcement and regulatory techniques.     

Toward an integration of economic and sociological approaches?

This article answers the question whether sociology of law and law and economics can be unificd into one integrated science. First, it is argued that an integration process inside law and economics has taken place, integrating most schools and partial analyses into one mainstream law and economics. Second, it is argued that there are no natural barriers against an integration of sociology and economics. Purely economic theories cannot and do not exist. What is calledeconomic analysis of law is basically a mixture of, for instance, 70 percent economics, 10 percent sociology, 10 percent psychology, and 10 percent other sciences. In addition, there is no such a thing as a purely sociological concept; concepts are sociological only in the sense that they are invented by people who call themselves sociologists.Nevertheless one should not expect that such a richer social science will lead to fundamentally different predictions and policy recommendations than those derived from the current simplistic economic analysis of law. The aspects studied by sociologists but assumed away by legal economists to date have in most cases no influence on the determination of (optimal) legal rules or on the long-run effects of legal rules.     

The Uneasy Case for Comparative Negligence

This article questions, and in some contexts disproves, thevalidity of the efficiency justifications for the comparativenegligence rule. One argument in the literature suggests thatcomparative negligence is the superior rule in the presenceof court errors. The analysis here shows the analytical flawin this claim and conducts numerical simulations — a formof synthetic "empirical" tests — that prove the potentialsuperiority of other rules. The second argument in the literaturein favor of the comparative negligence rule is based on itsalleged superior ability to deal with private information. Thisarticle develops a general approach to liability rules as mechanismsthat induce self-selection among actors. It then shows thatself-selection can occur, not only under comparative negligence,but also under every other negligence rule. These conclusionsweaken the efficiency explanation for the growing appeal ofthe "division-of-liability" principle within tort law and beyond.     

On the Superiority of Corrective Taxes to Quantity Regulation

The traditional view of economists has been that correctivetaxes are superior to direct regulation of harmful externalitieswhen the state's information about control costs is incomplete.In recent years, however, many economists seem to have adopteda different view—that either corrective taxes or quantityregulation could be superior to the other. We emphasize thatone argument for this newer view, identified with Weitzman (1974),holds only if the state is constrained to use a fixed tax rate(a linear tax schedule) even when harm is nonlinear. But if—asseems more plausible—the state can impose a nonlineartax equal to the schedule of harm or can adjust the tax rateupon learning that it diverges from marginal harm, then correctivetaxes are superior to quantity regulation. Another argumentfavoring quantity regulation is that it gains appeal when thestate is uncertain about the harm caused by an externality.In this case, however, a corrective tax schedule (equal to theexpected harm schedule) is superior to quantity regulation.     

China's State-Owned Enterprises in the First Reform Decade: An Analysis of a Declining Monopsony

We study the evolution of employment and wage outcomes in Chinese SOEs during the first decade of economic reforms, using a panel of data for almost 1000 enterprises covering the years 1980–90. Unlike the 1990s, which were marked by growing labor redundancy in the SOE sector, we find that CPE-fostered capital-intensity remained so extreme during the 1980s that workers' marginal products exceeded their full wages, just as in a classical monopsony outcome. Consistent with reasoning about the impact of competition upon monopsony, however, we find the marginal product-wage gap declined in the face of market-oriented reforms, and that monopsony was weakest where the state sector's shares of industrial output and enterprises were lowest, and for smaller enterprises and enterprises managed by lower levels of government. Our analysis also supports Xu and Zhuang's (1996) finding that bonus payments increased enterprises' revenues by more than it did their costs.     

Assessing the performance of public enterprises: A public-choice approach

Recent advances in the theory of public enterprises have led to the development of criteria for assessing their performance. The underlying idea is to determine the best practice of a particular enterprise and assess other public enterprises in the same industry against that best practice. This article is critical of the best-practice-approach and offers an alternative public-choice-based procedure.The objectives assigned to the operation of public enterprises in the best-practice approach do not reflect the specific functions of public enterprises. On the contrary, they are general economic policy objectives derived from a general theory of economic policy based on normative welfare economics. The efficiency of public enterprises is then considered a policy objective. In terms of a public-choice perspective, however, efficiency is almost never in itself a policy objective of a public enterprise. It is unlikely (but not impossible) that we may find a public enterprise with essentially the same production function as an efficiently operated private enterprise. By their very nature, public enterprises are diverse and suited for the most diverse policy objectives. Therefore, performance indicators of a general kind (based on welfare economics) do not reflect the purpose of running a particular public enterprise. The best-practice approach is based on the attribution of policy objectives. A more satisfying analytical approach derives the policy objectives of a particular enterpise by means of a public-choice analysis of its observable behavior. This positive and empirical analysis can then yield those policy objectives against which the performance of the public institution can be assessed.The article has three main sections. The first offers a critical discussion of the existing literature on performance measurements, in particular the best-practice approach. The second suggests an alternative public choice theory of public enterprise behavior, and the third develops a stepwise procedure for assessing the performance of public enterprises in a public-choice analytical framework.     

著作权的法经济分析范式——兼评知识产权利益平衡理论

从法经济分析的角度解释,著作权法是维护创作者与投资者经济上诱因的制度工具,虽然其客体作为无形财产,具有不同于有体财产的特殊性,但该特殊性仅体现在法律构造的具体设计上,而不能推翻法经济分析的基本预设。法经济分析中的事前分析与边际分析,以及对理性人假设与财产权功能的正确定位,都有助于使著作权更好地融入现有成熟的财产权这制度中,而不是仅仅因客体的特殊性而主张将著作权与传统财产权分离。动辄以利益平衡解决著作权法中的问题,不但无法实现平衡目标,还将导致著作权制度在效率上的缺失。     

Sidgwick's Utilitarian Analysis of Law: A Bridge from Bentham to Becker?

Jeremy Bentham's utilitarian analysis of crime and punishmentis regularly characterized as an inspiration for the economicanalysis of law, whereas Henry Sidgwick has been all but ignoredin the discussions of the history of law and economics. Sidgwickis well known as the godfather of Cambridge welfare economics.Yet, as we will show, his utilitarian analysis of issues inproperty, contract, tort, and, criminal law reflects themesnow associated with the Chicago approach and advances on Benthamin multiple ways—including through the use of marginalanalysis—making him a bridge on the road from Benthamto Becker.     

Financial intermediation in the securities markets law and economics of conduct of business regulation

The economic theory explains the role performed by intermediaries in financial markets. In securities markets, in particular, intermediaries act as facilitators of the financial exchange. In this context, conduct of business regulation is justified on the basis of structural problems of asymmetric information affecting the relationship between securities professionals and the individual investor.In this paper, two major conduct of business rules are analysed in the light of the kind of market imperfections they should be intended to address: the suitability and the anti-churning rules. From a functional perspective, the analysis merges major insights of financial theory with a comparative discussion of the legal rules in both the U.S. and the European Union. Law and economics approach to the matter leads to a much broader and more economically sound interpretation of the “churning” problem. This is related to an agency-based explanation of one of the most topical puzzles under debate in financial economics: the problem of noise trading.