A new rule kicks in today requiring airlines to include all taxes and mandatory fees in their advertised fares.  The rule, part of a broader “passengers’ bill of rights”-type regulation promulgated by the Department of Transportation, is being sold as a proconsumer mandate:  It purportedly protects consumers from the sticker shock that results when they learn that the true consumer price for a flight, due to taxes and mandatory fees, is much higher than the advertised price.

But how consumer-friendly is this rule?  Won’t it be easier to raise taxes and fees when they aren’t presented as a line item, when consumers aren’t “startled” to see the exorbitant amount they’re paying for government services?  Value-added taxes (VATs), which tax the incremental value added at each stage of production and are generally included in the posted price for an item, have proven easier to raise than sales taxes, which are added at the register.  That’s because the latter are more visible so that increases are more likely to generate political opposition.  While VATs are common throughout Europe, they’re virtually non-existent in the United States, in part because we Americans have recognized the important role “tax sticker shock” plays in creating political accountability.

Consumer advocates, nevertheless, are lauding the new Department of Transportation rule.  They don’t seem to realize that higher taxes are bad for consumers and that taxes are more likely to rise when the government can hide them.  They also seem to care little about consumer sovereignty.  Don’t consumers have a right to know how much they’re paying to have scads of Homeland Security officers bark orders at them and gawk at their privates?

 

Filed under: advertising, consumer protection, regulation, taxes

Haas-Sloan Conference on 

The Law & Economics of Organization: New Challenges and Directions

Nov. 30-Dec. 1, 2012

The Walter A. Haas School of Business, with support from the Alfred P. Sloan Foundation, is issuing a call for original research papers to be presented at the Conference on The Law & Economics of Organization: New Challenges and Directions. The conference will be held at the Haas School of Business in Berkeley, CA, on Friday, November 30, and Saturday, December 1, 2012. A reception and dinner will follow a keynote address by Nobel Laureate Oliver Williamson on Friday.

The purpose of the conference is to take stock of recent advances in the analysis of economic organization and institutions inspired by the work of 2009 Nobel Laureate Oliver Williamson and to examine its implications for contemporary problems of organization and regulation. Empirical research and research informed by detailed industry and institutional knowledge is especially welcome.

Relevant topics include but are not limited to

• the nature, role, and implications of bounded rationality and opportunism as they relate to issues of contracting and the institutional framework governing contractual relationships
• government intervention in the market through regulation, antitrust policies, and direct investment (e.g., energy market and health care regulation; patent enforcement; concession contracts in alternative legal environments; government tax preferences for and subsidization of technologies and markets)
• the operation and regulation of financial markets and institutions (e.g., the origins of and responses to the financial crisis; the role of credit rating agencies; financial and futures market organization and regulation)
• legal and economic determinants of corporate organization, from joint ventures to the organization of corporate boards (e.g, labor restrictions and corporate organization; organization of high technology companies; regulation of corporate boards)

Paper proposals or, if available, completed papers should be submitted on line at http://www.bus.umich.edu/Conferences/Haas-Sloan-LEO-Conference by March 31, 2012. The deadline for completed papers is November 1, 2012. Selections will be made by the conference organizers, Professors Pablo Spiller (Berkeley), Scott Masten (Michigan), and Alan Schwartz (Yale). Conference papers will be published in a special issue of the Journal of Law, Economics, & Organization.

Filed under: antitrust, behavioral economics, economics

A Congressional Bill proposing a “Reasonable Profits Board” so that profits on the sale of oil and gas in excess of what is “reasonable” can be subjected to a windfall tax.  A brief description:

According to the bill, a windfall tax of 50 percent would be applied when the sale of oil or gas leads to a profit of between 100 percent and 102 percent of a reasonable profit. The windfall tax would jump to 75 percent when the profit is between 102 and 105 percent of a reasonable profit, and above that, the windfall tax would be 100 percent. The bill also specifies that the oil-and-gas companies, as the seller, would have to pay this tax.

We have a long archives of posts here at TOTM on a variety of forms of price gouging legislation in oil and gas.   Most recently, in discussing a White House Task Force aimed to detect price gouging and usurping jurisdiction from the Federal Trade Commission, I wrote:

One need only read the FTC’s 222 page report on gasoline prices post-Katrina and Rita to appreciate the Commission’s expertise in this area.  But perhaps most importantly, and undoubtedly related to the appointment of a working group outside the Commission, is that the Commission understands the relevant economics.  Indeed, as I noted just recently, then Bureau of Economics Director Michael Salinger gets it right when he observed  “as unpleasant as high-priced gasoline is, running out will be even worse.”  Further, it was the Commission Report that found not only scant evidence of what might be described as “gouging” — but did find examples of gas stations that shut down rather than risk a suit under a state price gouging law.  “Price Gouging Helps Consumers” doesn’t make for much of an election slogan, so perhaps this is all to be expected.  But nobody should be fooled into believing that enforcement of existing state price gouging laws, or a new federal task force devoted investigate “price gouging,” are going to make consumers better off.

The criticisms against price gouging laws become even stronger against a “Reasonable Profits Board,” which is even more blatantly political, even more likely to harm consumers, and even more likely to waste social resources than enforcement of state price gouging laws.

 

Filed under: economics, federal trade commission

As has become customary with just about every new product announcement by Google these days, the company’s introduction on Tuesday of its new “Search, plus Your World” (SPYW) program, which aims to incorporate a user’s Google+ content into her organic search results, has met with cries of antitrust foul play. All the usual blustering and speculation in the latest Google antitrust debate has obscured what should, however, be the two key prior questions: (1) Did Google violate the antitrust laws by not including data from Facebook, Twitter and other social networks in its new SPYW program alongside Google+ content; and (2) How might antitrust restrain Google in conditioning participation in this program in the future?

Read the full piece here.

I am very pleased to pass along this information about the 15th Annual Symposium on Antitrust Law on January 26th, 2012 sponsored by the George Mason Law Review, GMU Law & Economics Center, and Kelley Drye & Warren LLP.

 

The George Mason Law Review, in partnership with the George Mason University Law & Economics Center and sponsor Kelley Drye & Warren LLP, is pleased to present its 15^th Annual Symposium on Antitrust Law on January 26, 2012. The symposium, entitled “Antitrust in High-Tech Industries,” will be held in the Founders Hall Auditorium at George Mason University School of Law, located at 3301 Fairfax Drive, Arlington, Virginia.

The program will focus on the proper role of antitrust in high technology industries, including the extent to which current competition policy is adequate to address dynamic competition concerns that are prevalent in rapidly evolving sectors.  Specifically, panels will explore the application of antitrust laws to social media, mergers, online search, and online advertising.

The Keynote Address will be delivered by William Kovacic, former Chairman of the US Federal Trade Commission.

Please join us on January 26, 2012! To register, click here.

For a detailed description of the Symposium Panels, click here.

Fees:
General Admission: $150.00
Government/Academic: $50.00
Student: $50.00

Note: 5.5 CLE credit hours from the Virginia Bar Association are available for program attendees.

For more information, contact Katie Brown at [email protected] or call (703) 375-9529.

15th Annual Symposium Brochure

Speakers and Agenda:

8:00 – 8:30am            Registration and Continental Breakfast

8:30 – 8:35am             Welcome and Introduction

8:35 – 10:00am          Panel 1: Perspectives on High-Tech Antitrust

Howard Shelanski, Georgetown University Law Center

Herbert Hovenkamp, University of Iowa College of Law

George L. Priest, Yale Law School

Keith Hylton, Boston University School of Law

10:15 – 11:45pm        Panel 2: Social Media

Catherine E. Tucker, MIT Sloan School of Management

Spencer W. Waller, Loyola University, Chicago School of Law

Frank Pasquale, Seton Hall Law School

11:45 – 1:45pm          Luncheon and Keynote Address

William E. Kovacic, The George Washington University Law School

1:45 – 3:15pm             Panel 3: Mergers

Luke M. Froeb, Vanderbilt University

Thomas W. Hazlett, George Mason University School of Law

Jonathan B. Baker, American University Washington College of Law

3:30 – 4:45pm           Panel 4: Search and Online Advertising

William C. MacLeod, Kelly Drye & Warren LLP

Joshua D. Wright, George Mason University School of Law

Daniel Crane, University of Michigan Law School

Scott A. Sher, Wilson Sonsini Goodrich & Rosati

4:45 – 5:00pm           Closing Remarks

5:00 – 6:00pm           Refreshments/ Reception

Location:
George Mason University School of Law
Founders Hall Auditorium
3301 Fairfax Drive
Arlington, VA 22201

For directions, click here.

Filed under: antitrust, george mason university school of law

The web is all abuzz about possible antitrust implications concerning Google’s new personalized search (see, e.g., here and here), integrating search with Google Plus.  Here is Google’s description of “Search, plus Your World”:

We’re transforming Google into a search engine that understands not only content, but also people and relationships. We began this transformation with Social Search, and today we’re taking another big step in this direction by introducing three new features:

1. Personal Results, which enable you to find information just for you, such as Google+ photos and posts—both your own and those shared specifically with you, that only you will be able to see on your results page;
2. Profiles in Search, both in autocomplete and results, which enable you to immediately find people you’re close to or might be interested in following; and,
3. People and Pages, which help you find people profiles and Google+ pages related to a specific topic or area of interest, and enable you to follow them with just a few clicks. Because behind most every query is a community.

The linked articles raising antitrust concerns largely talk about things like leveraging monopoly power in search into social networks and so forth.  The usual arguments.  For example:

By making Google+ such a large part of search — as well as Picasa — Google certainly is toeing the line of a company using monopoly to extend its reach into adjacent markets. Consider Microsoft’s moves with Internet Explorer, which was bundled with Windows starting in 1998. Microsoft used its monopoly on PC operating systems to nudge into the browser market, where Netscape had overwhelming market share lead. How is what Google is doing different?

Let’s start with the obvious differences: (1) the DOJ had to prove anticompetitive effects in Microsoft; (2) Microsoft was unable to muster up an efficiency justification.  Discussions of antitrust implications of any business practice that don’t focus on competitive effects and efficiency justifications are non-starters.

So let’s start with the most obvious thing that should come to mind when watching the integration of general search with Google Plus.   Integration!  Personalizing search results makes (at least some!) users better off.  Users that prefer non-personalized results can have them too.  But the trend toward providing a deeper, better, and different forms of answers to questions posed in search queries is not a Google-specific thing.  Its an industry thing driven by consumer preferences on the web.  When Google or Facebook or Twitter is able to integrate functions of search and social networking to create something different and demanded by consumers, that consumers enjoy and derive surplus from, this is a competitive benefit.  Competitive benefits count in antitrust because they make consumers better off.  This is very basic. But worth repeating.

The antitrust question is whether, despite these obvious efficiencies, there is plausible evidence of anticompetitive harm — that is, harm to competition rather than individual rivals like Bing, Twitter, or Facebook.  My personal view — which I’ve written about at great length here, here, and here — is that there is no such evidence.  But for now, the critical point is that antitrust analysis counts the integration of these functions in a manner satisfying consumer preferences — and it seems obvious that this integration produces results that consumers want — as an important consumer benefit.  This is a feature and not a bug of antitrust law.   Antitrust law that ignores or is biased against the efficiencies of vertical integration, or the introduction of new products integrating previously separate functions (like personalized search, or improved search results with maps), is at significant tension with economic theory and is simply not compatible with a consumer-welfare based competition regime.

Filed under: antitrust, google, Internet search, technology

Judge Ginsburg and I are working on a project for an upcoming festschrift in honor of Bill Kovacic.  The project involves the role of settlements in the pursuit of the goals of antitrust.  In particular, we are looking for examples of antitrust settlements between competition agencies and private parties — in the U.S. or internationally — involving conditions either: (1) clearly antithetical to consumer welfare, or (2) that arguably disserve consumer welfare.  In the former category, examples might include conditions requiring firms to make employment commitments.  The second category might include conditions placing the agency in an ongoing regulatory role or restricting the firm’s ability to engage in consumer-welfare increasing price or non-price competition.

I turn to our learned TOTM readership for help.  Please feel free to leave examples in the comments here — or email me.  Cites and links appreciated.

Filed under: antitrust, doj, federal trade commission, scholarship, settlements

Tomorrow morning at 10:30 I’ll be on a panel at AALS discussing behavioral economics and antitrust law and policy.

The panel includes: James Cooper, Bruce Kobayashi, William Kovacic, Steve Salop, Maurice Stucke, Avishalom Tor and myself.  Its a really good group and I’m looking forward to the discussion.  Here are the session details:

The program will focus on the influence of Behavioral Economics on Antitrust Law and Policy.  Behavioral economics, which examines how individual and market behavior are affected by deviations from the rationality assumptions underlying conventional economics, has generated significant attention from both academics and policy makers. The program will feature presentations by leading scholars who have addressed how behavioral economics impacts antitrust law and policy.

In my presentation I’ll be discussing my work on the topic (co-authored with Judd Stone) and some extensions of that work.

See you there.

Filed under: antitrust, behavioral economics

Summary

In recent months a veritable legal and policy frenzy has erupted around Google generally, and more specifically concerning how its search activities should be regulated by government authorities throughout the world in the name of ensuring “search neutrality.”  Concerns with search engine bias have led to a menu of proposed regulatory reactions.  Although the debate has focused upon possible remedies to the “problem” presented by a range of Google’s business decisions, it has largely missed the predicate question of whether search engine bias is the product of market failure or otherwise generates significant economic or social harms meriting regulatory intervention in the first place.  “Search neutrality” by its very name presupposes that mandatory neutrality or some imposition of restrictions on search engine bias is desirable, but it is an open question whether advocates of search neutrality have demonstrated that there is a problem necessitating any of the various prescribed remedies. This paper attempts to answer that question, and we evaluate both the economic and non-economic costs and benefits of search bias, as well as the solutions proposed to remedy perceived costs. We demonstrate that search bias is the product of the competitive process and link the search bias debate to the economic and empirical literature on vertical integration and the generally-efficient and pro-competitive incentives for a vertically integrated firm to favor its own content. We conclude that neither an ex ante regulatory restriction on search engine bias nor the imposition of an antitrust duty to deal upon Google would benefit consumers. Moreover, in considering the proposed remedies, we find that by they substitute away from the traditional antitrust consumer welfare standard, and would impose costs exceeding any potential benefits.