Antitrust in China: The Problem of Incentive Compatibility

This paper reviews China's recent efforts to enact a competitionpolicy (antitrust) law. We focus on three issues: (1) What isthe substance of the proposed law, and how does it differ fromexisting antitrust law in other countries, (2) How will thelaw be implemented or enforced, and how will those who mustimplement this law interpret their mandate, and (3) What willbe the likely effects of this law given China's unique historyand cultural heritage. We emphasize China's economic, legaland regulatory contexts in which an antitrust law may be enforced.Our central focus is the problem of establishing a substantiveand procedural legal framework that is incentive-compatiblewith economic efficiency and growth. The draft law could beimproved, both to increase its clarity and to make its enforcementmore consistent with the goal of achieving improvements in economicefficiency. Nevertheless, there is much merit in the draft,especially its strong focus on reducing anticompetitive practicesof state-owned enterprises (SOEs) and other government bodies.However, our major difficulty with the new law is that, in theabsence of a tradition of reliance on the rule of law, Chineseand foreign enterprises will find it very difficult to relyon the antitrust statute or the actions of the courts in Chinaas a basis for predicting the antitrust liability that mightresult from various business practices. Therefore, the principalvector by which antitrust law (or indeed any law) affects economicbehavior is absent from the Chinese scene. Unless the bureaucracythat enforces the new antitrust law actively pursues a policyof consistent enforcement based on written guidelines, staredecisis, or other sources of predictability, the substance ofthe statute itself will have little significance. That outcomewould represent a significant loss for the economic welfareof the Chinese people.     

DOES ECONOMICS PROVIDE A RELIABLE GUIDE TO REGULATING COMMODITY BUNDLING BY FIRMS? A SURVEY OF THE ECONOMIC LITERATURE

This article surveys the voluminous economic literature on commoditybundling. While bundling has been widely studied, the vast majorityof the literature has focused on theoretical treatments of bundlingthat demonstrate a wide range of reasons why firms might engagein bundling. These papers generally contain restrictive assumptions,including assumptions regarding the existence of monopoly insome markets, and the nature of rivalry in others. The modelscontained in these papers also generally suppress the more obviousand ubiquitous reasons firms may use bundling. Moreover, thesemodels have not been subject to robustness checks, nor havetheir assumptions been tested empirically. This review of theeconomic literature generally confirms the US Solicitor General'sview in 3M v. LePage's regarding the underdeveloped state ofthe economics literature and its position that the US SupremeCourt should defer promulgation of antitrust standards for bundling.While the literature has demonstrated the possibility that bundlingcan generate anticompetitive harm, it does not provide a reliableway to gauge whether the potential for harm would outweigh anydemonstrable benefits from the practice. As a result, the widespreadapplication of the antitrust laws to bundling by firms can generatesignificant error costs by erroneously condemning or deterringefficient business practices. In the future, economists shouldseek to expand their understanding of both the anticompetitiveand procompetitive reasons firms engage in bundling. This willentail studying the reasons why bundling is adopted by firmswithout market power, relaxing the assumption of monopoly intheoretical models, and generating testable hypotheses and thedata to test them.     

Drug culture expertise and substance use

This study concerns the relationship between knowledge of drug culture and substance use. Results from a sample of 2,635 middle and high school students indicate that (1) knowledge of drug culture is positively correlated with substance use; (2) drug knowledge is more reliable and coherent in older youth; (3) drug knowledge is unrelated to other kinds of knowledge acquired in school; (4) youth exposed to peers' substance use in school have more drug knowledge; and (5) the earlier young people begin using drugs and alcohol, the more they know about the drug culture. Results suggest that knowledge of the drug culture may be an unobtrusive indicator of substance use problems.This project was made possible by a grant from the Tulsa Psychiatric Center, Tulsa, Oklahoma.Received Ph.D. from University of California at Berkeley in personality psychology. Research interests include school dropouts, substance use, delinquency, identity, narcissism, and health. To whom correspondence should be addressed.Received Ph.D. from University of California at Berkeley in personality psychology. Research interests include school dropouts, substance use, delinquency, personal commitments, identity, narcissism, and health.Received Ph.D. from University of California at Berkeley in personality psychology. Research interests include moral development and personality.     

Do legislators' votes reflect constituency preference? A simple way to evaluate the Senate

U.S. senators frequently vote against the preference of their constituency, assuming that such a preference exists. Both of a state's senators represent the same constituency. Whenever they split their votes, one or the other is necessarily going against the constituency preference. For the sample of defense-related votes analyzed above, misrepresentation — either observable vote splitting or unobservable vote matches that go against the constituency preference — occurred at least 37 percent of the time, at least 46 percent on one vote. Although party differences accounted for more than two-thirds of the vote splitting, a substantial number of splits remained. Besides, a party difference for a state's senatorial pair is itself problematical.The method employed here can be applied easily to any data whatever on senatorial voting. Its application will show that, quite often, many senators depart from constituency preference. This finding refutes the hypothesis, popular in certain circles, that ours is a more or less perfect political market with little or no scope for ideologically driven voting by legislators.     

A precise method for evaluating election schemes

A previously published paper evaluated election schemes under a wide variety of election circumstances. This paper improves upon the previous work by refining the measures used to rate the election schemes and increasing the statistical significance of those ratings. With these modifications, we can now draw some new conclusions:

1. In general circumstances, the Borda System outperforms the Copeland System which outperforms Approval which outperforms Majority Rule.
2. The Maximin Rule — strongly supported by Rawls's — turns out to be a reasonable election rule if the number of election alternatives is large relative to the number of voters.
3. With two exceptions, all our election systems performed quite well given a society with highly correlated utilities.
4. Given a polarized society, a serial dictatorship was better than every other election system except Borda.

Perhaps even more importantly, we now have the possibility of conducting some cost/benefit analyses of different proposals for electoral changes.     

Interest in political campaigns: The influence of question order and electoral context

A split-ballot experiment shows that, when people are asked how interested they are in following political campaigns, their response depends not only on the order in which the question is asked, but also on the broader electoral context in which it is posed. When asked how interested they were in following the political campaigns immediatelyafter a question about whether or not they voted in the (1982) election, people were more likely to think they were interested in the campaign, especially if they claimed to have voted, than if they were asked about it immediatelybefore the question on whether or not they voted. This order effect, however, appears to depend onwhen the questions are asked. If asked within a few weeks after the election, there is little or no order effect. But later, as the memory of the campaign fades, the order of the questions makes a sizable difference in the results. This order effect also seems to be more pronounced among better-educated respondents, suggesting that they are more likely to feel pressured by a social norm to vote and to express an interest in political affairs, not only in real life, but in the survey interview as well. The paper concludes with a brief discussion of the implications for the design of the interview schedule used in the American National Election Studies.The research reported in this paper was supported by a grant from the National Science Foundation (SES81-11404).