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     

" 'These Boots Are Made for Walking' ": A Reply

Erik Craft's comment on our 2000 article takes up a minor point,the impact of no-fault divorce on the gender of the spouse filingfor divorce. In the original article, we related the genderof the filing to rent exploitation during marriage, rent appropriationthrough divorce, and particularly child custody. We tested thehypotheses we generated using a sample of more than 46,000 divorcedecrees from the only four states collecting all the informationwe needed. The type of divorce ground was only a control variable,and not a strong one. We argue that Craft's comment misses ouressential point.     

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.     

The Jean Mpambara Case: Outlining "Culpable Omissions" in International Criminal Law

The Trial Chamber of the International Criminal Tribunal forRwanda, through its judgment in Jean Mpambara case, outlinedthe significance of culpable omissions, outlining three broadoffences under which it could be used as evidence. While itis clear that an omission may be considered as evidence of aidingand abetting or joint criminal enterprise, it is still not clearwhether omission of failure of duty to prevent or punish willbe considered as part of Article 6(1) of the statute as doneby the other trial chambers,¹     

COMPETITION IN FREIGHT RAILWAYS: "ABOVE-THE-RAIL" OPERATORS IN CENTRAL EUROPE AND RUSSIA

The railways of Russia and the Central and Eastern Europeancountries are in the process of restructuring. In most cases,the "vertical separation" reform model is being pursued, andreformers are seeking to introduce competition among freighttrain operators through the provision of "open access" to themonopoly infrastructure. This paper shows that, in two countries,Poland and Romania, a good deal of competition has been createdby the entry of new freight operators, many of them either largeshippers integrating upstream or former freight forwarders.However, in other countries, the incumbent freight operatorsretain virtually 100 percent of the market. In particular, Russiahas taken only the very first steps toward creating competitionin this sector, and new freight train operators face significantbarriers to competing with the incumbent.     

Federal Oversight, Local Control, and the Specter of "Resegregation" in Southern Schools

Analyzing data for the 100 largest districts in the South andBorder states, we ask whether there is evidence of "resegregation"of school districts and whether levels of segregation can belinked to judicial decisions. We distinguish segregation measuresbased on racial isolation from those based on racial imbalance.Only one measure of racial isolation suggests that districtsin these regions experienced resegregation between 1994 and2004, and changes in this measure appear to be driven largelyby the rising nonwhite percentage in the student populationrather than by district policies. Although we find no time trendin racial imbalance over this period, we find that variationsin racial imbalance across districts are nonetheless associatedwith judicial declarations of unitary status, suggesting thatsegregation in schools might have declined had it not been forthe actions of federal courts.     

COMPETITION POLICY WITH OPTIMALLY DIFFERENTIATED RULES INSTEAD OF "PER SE RULES VS RULE OF REASON"

Both in U.S. antitrust and EU competition policy, a developmentto a broader application of rule of reason instead of per serules can be observed. In the European discussion the attemptto base competition policy on a "more economic approach" ismainly viewed as improving the economic analysis in the assessmentof specific cases. In this paper it is shown from a generallaw and economics perspective that the application of rulesinstead of focussing on case-by-case analyses can have manyadvantages (lower regulation costs, rent-seeking, and knowledgeproblems), although an additional differentiation of rules througha deeper assessment can also have advantages in regard to thereduction of decision errors of type I and II. After introducingthe notion of a continuum of more or less differentiated rules,we show—based upon law and economics literature upon theoptimal complexity of rules—in a simple model that a competitionrule is optimally differentiated if the marginal reduction ofthe sum of error costs (as the marginal benefit of differentiation)equals the marginal costs of differentiation. This model alsoallows for a more detailed analysis of the most important determinantsof the optimal degree of rule-differentiation. From this lawand economics perspective, competition policy should consistmainly of (more or less differentiated) rules and should onlyrarely rely on case-by-case analysis. Therefore the main taskof a "more economic approach" is to use economics for the formulationof appropriate competition rules.     

A Proposal for Formalizing the "No Case Exists" Objections Procedure at the International Court of Justice

This paper describes and analyses the "no case exists" objectionsthat have been made and dealt with in various ways before theInternational Court of Justice. The argument underlying theseobjections usually runs as follows: the Court clearly or manifestlylacks jurisdiction or there is clearly no dispute. This wouldlead to the result that no case exists, because, for a caseto exist, there must be, at a minimum, some dispute as to theCourt's jurisdiction so as to trigger the Court's function underArticle 36(6) of the Statute. Neither the Statute nor the Rulesof Court contains a specific procedure for addressing such objectionsand the various existing procedures do not allow the Statesmaking such objections to achieve their goals. The parties andthe Court have had to struggle with these objections in variousirregular ways. This paper proposes that the Court formalizethe procedure to deal with these objections by amending theRules of Court to provide for a "no case exists" objectionsprocedure. The essay concludes by presenting a proposed ruleas an illustration.     

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.     

THE ECONOMICS OF "WIRELESS NET NEUTRALITY"

Network neutrality issues have been vigorously debated worldwideover the past few years. One major aim of network neutralityproponents is to prevent high-speed Internet service providersfrom charging content providers for priority delivery. Recently,proponents have turned their attention to the regulation ofwireless networks, such as those for cellular phones, whichprovide increasing numbers of consumers with access to Internetservices. Some application providers have relied on a recentacademic paper to support greater regulation of wireless operators.Although the proposals to regulate these networks use the phrase"net neutrality," the regulations they seek to impose on wirelessoperators have little in common with those being sought forother Internet service providers. In this article, we providea framework for determining whether certain kinds of regulationsshould be imposed on the owners of wireless networks. We alsoconsider the benefits and costs of specific proposals for theregulation of these networks. Our principal conclusion is thatthe costs of most of these proposals are likely to exceed thebenefits.     

Comment on "Aligning the Interests of Lawyers and Clients"

Polinsky and Rubinfeld (2003) propose a novel system for eliminatingthe conflict of interest between lawyers and clients over howhard the lawyer should work on a given case. In their analysisof the system, however, Polinsky and Rubinfeld implicitly assumethat the lawyer's marginal cost of effort is common knowledge.This comment shows that, when this assumption is relaxed, thoughtheir scheme does reduce the agency problem relative to thestandard contingency fee arrangement, it no longer eliminatesit.     

Discussion of "Using Stationarity Tests in Antitrust Market Definition"

Send correspondence to: Daniel Hosken, Federal Trade Commission, 600 Pennsylvania Ave. NW, Washington, DC 20850; E-mail: dhosken@ftc.gov. The first 150 words of the full text of this article appear below.