From the NY Times:

Uber, a company based in San Francisco, is introducing a smartphone app to New York that allows available taxi drivers and cab-seeking riders to find one another. The company said the service would begin operating on Wednesday in 105 cabs — a bit less than 1 percent of the city’s more than 13,000 yellow cabs. Uber added that it hoped to recruit 100 new drivers each week.

But the program may have a significant problem: Taxi officials say that Uber’s service may not be legal since city rules do not allow for prearranged rides in yellow taxis. They also forbid cabbies from using electronic devices while driving and prohibit any unjustified refusal of fares. (Under Uber’s policy, once a driver accepts a ride through the app, no other passenger can be picked up.)

So, who else might be interested in fighting the rise of Uber and similar services?

The influx of apps appears to have created a moment of unity among yellow-taxi, livery and black-car operators, all of whom have raised concerns about the apps’ legality. Some industry officials said the commission was not acting forcefully enough; the result, said Avik Kabessa, the chief executive of Carmel Car and Limousine Service and a member of the board of the Livery Roundtable, a group representing livery drivers, is a New York City version of “the Wild West.”  An analysis conducted by the Metropolitan Taxicab Board of Trade, which represents yellow-taxi operators, identified what it deemed to be 11 potential violations of taxi guidelines in Uber’s model. These included charging a tip automatically, not allowing for cash payments and turning away passengers while being on duty.

Uber and similar services face similar threats in other cities, including here in DC, where Uber faced the “Uber Amendments” which would require Uber to charge five times the price of a cab!  At least the DC Commission was incredibly clear about the role of the regulation: to suppress competition and harm consumers:

Explanation and Rationale
· This section would clarify how sedan services operate.

· Sedans would be required to charge a minimum fare of 5 times the drop rate for taxicabs.

· Sedans would be required to charge time and distance rates that are greater as those for taxicabs.

· These requirements would ensure that sedan service is a premium class of service with a substantially higher cost that does not directly compete with or undercut taxicab service.

Here is Uber’s response to the DC Council:

The Council’s intention is to prevent Uber from being a viable alternative to taxis by enacting a price floor to set Uber’s minimum fare at today’s rates and no less than 5 times a taxi’s minimum fare. Consequently they are handicapping a reliable, high quality transportation alternative so that Uber cannot offer a high quality service at the best possible price. It was hard for us to believe that an elected body would choose to keep prices of a transportation service artificially high – but the goal is essentially to protect a taxi industry that has significantexperience in influencing local politicians. They want to make sure there is no viable alternative to a taxi in Washington DC, and so on Tuesday (tomorrow!), the DC City Council is going to formalize that principle into law.

There appears to be subsequent history, including a temporary shelving of the Amendment with the potential to bring it back on its own in the future.  Councilwoman and George Washington Law Prof Mary Cheh is a force behind the Uber Amendment and complained that a settlement could not be reached with Uber that would shed the requirement of having prices 5 times higher, but retain a price differential in the name of shielding taxi cabs from competition (emphasis my own):

Establishing a minimum fare is important to distinguish premium sedan service from traditional taxicab service and to prevent sedans from directly competing with or undercuting taxicabs.  Taxi companies want minimum fares that are much higher than what I am proposing in my amendment.  However, I believe that simply preserving the status quo is appropriate and reasonable.

I am deeply disappointed that Uber has decided that it no longer supports this amendment that we negotiated in good faith.  The taxi industry is one that has been regulated for a very long time.  If Uber wishes to operate taxis, then it is free to do so, but it should then be subject to the same regulations and requirements of taxis.

As I frequently point out on the blog, local barriers to entry cause substantially greater dissipation of consumer surplus than is conventionally acknowledged (e.g., here, here, and here).

HT: Hal Singer.

Filed under: barriers to entry, business, economics, licensing, markets, technology

Michael McCann (Vermont, CNNSI) has a very interesting column on developments in Ed O’Bannon’s lawsuit against the NCAA.   O’Bannon is challenging the NCAA’s licensing of the names, images and likenesses of former Division I college athletes for commercial purposes without compensation or consent.  McCann discusses the implications of O’Bannon’s motion to expand the class to include current players:

The prospect of O’Bannon v. NCAA radically reshaping college sports is real. If O’Bannon ultimately prevails, “student-athletes” and “amateurism” would take on new meanings in the context of D-I sports. While college athletes would still not obtain compensation for their labor, they would be compensated for the licensing of their identity. If O’Bannon instead extracts a favorable settlement from the NCAA, these athletes would likely be compensated as well.

Still, it’s early in the litigation process and, besides, the NCAA has a good record in court. The NCAA is sure to raise concerns about the new world of D-I college sports as envisioned by O’Bannon. For one, how a fund for current student-athletes is distributed and how former student-athletes are compensated will spark questions. Should star players get more? Would Title IX be implicated if male student-athletes receive more licensing revenue because they might generate more revenue than female student-athletes? Also expect some colleges and universities to bemoan that they cannot afford to contribute to player trusts unless they eliminate most of their teams and give pay cuts to coaches and staff. Along those lines, schools with large endowments or those with high revenue-generating teams may only become “richer” in a college sports world where certain schools have the financial wherewithal to compensate student-athletes while others do not.

Go read the whole thing.

 

 

Filed under: antitrust, cartels, sports

My former student and recent George Mason Law graduate (and co-author, here) Angela Diveley has posted Clarifying State Action Immunity Under the Antitrust Laws: FTC v. Phoebe Putney Health System, Inc.  It is a look at the state action doctrine and the Supreme Court’s next chance to grapple with it in Phoebe Putney.  here is the abstract:

The tension between federalism and national competition policy has come to a head. The state action doctrine finds its basis in principles of federalism, permitting states to replace free competition with alternative regulatory regimes they believe better serve the public interest. Public restraints have a unique ability to undermine the regime of free competition that provides the basis of U.S.- and state-commerce policies. Nevertheless, preservation of federalism remains an important rationale for protecting such restraints. The doctrine has elusive contours, however, which have given rise to circuit splits and overbroad application that threatens to subvert the state action doctrine’s dual goals of federalism and competition. The recent Eleventh Circuit decision in FTC v. Phoebe Putney Health System, Inc. epitomizes the concerns associated with misapplication of state action immunity. The U.S. Supreme Court recently granted the FTC’s petition for certiorari and now has the opportunity to more clearly define the contours of the doctrine. In Phoebe Putney, the FTC has challenged a merger it claims is the product of a sham transaction, an allegation certain to test the boundaries of the state action doctrine and implicate the interpretation of a two-pronged test designed to determine whether consumer welfare-reducing conduct taken pursuant to purported state authorization is immune from antitrust challenge. The FTC’s petition for writ of certiorari raises two issues for review. First, it presents the question concerning the appropriate interpretation of foreseeability of anticompetitive conduct. Second, the FTC presents the question whether a passive supervisory role on the state’s part can be construed as state action or whether its approval of the merger was a sham. In this paper, I seek to explicate the areas in which the state action doctrine needs clarification and to predict how the Court will decide the case in light of precedent and the principles underlying the doctrine.

Go read the whole thing.

Filed under: antitrust, economics, federalism, george mason university school of law, legal scholarship

You pronounce the petitioners name in Leegin Creative Leather Products, Inc. v. PSKS, Inc.: lee-j?n.

That and other SCOTUS pronunciation debates resolved here (courtesy of the Green Bag and the Yale Law Library).

Filed under: antitrust, resale price maintenance

From the WSJ:

White House regulatory chief Cass Sunstein is leaving his post this month to return to Harvard Law School, officials said Friday.

Mr. Sunstein has long been an advocate of behavorial economics in setting policy, the notion that people will respond to incentives, and has argued for restraint in government regulations. As such, he was met with skepticism and opposition by some liberals when he was chosen at the start of the Obama administration.

As administrator of the Office of Information and Regulatory Affairs in the Office of Management and Budget, his formal title, Mr. Sunstein led an effort to look back at existing regulations with an eye toward killing those that are no longer needed or cost effective. The White House estimates that effort has already produced $10 billion in savings over five years, with more to come.

“Cass has shown that it is possible to support economic growth without sacrificing health, safety and the environment,” President Barack Obama said in a statement. He said these reforms and “his tenacious promotion of cost-benefit analysis,” will “benefit Americans for years to come.”

Even so, conservatives point to sweeping new regulations for the financial sector and health care in arguing that the administration has increased the regulatory burden on businesses.

Mr. Sunstein will depart this month for Harvard, where he will rejoin the law school faculty as the Felix Frankfurter Professor of Law and Director of the Program on Behavioral Economics and Public Policy.

It will be interesting to hear, once Professor Sunstein returns to an academic setting, his views on whether and in what instances — aside from the CFPB — behavioral economics actually had much impact on the formation of regulatory policy within the Administration.

Filed under: behavioral economics, regulation

Richard Epstein replies to Judge Posner’s Apple v. Motorola opinion and follow-up article in The Atlantic.

The anti-patent sentiment has just been fueled by a remarkable opinion by Judge Richard Posner, my long-time colleague at the University of Chicago, sitting as a trial judge in the major case, Apple v. Motorola. The high-profile case concerns five patents—four by Apple and one by Motorola—that are involved in mobile phone technology, and it has drawn more than its fair share of attention. Judge Posner took the extraordinary step of dismissing the claims of both sides with prejudice—meaning, the case cannot be filed again elsewhere—on the grounds that neither side could make good on its argument for either damages or injunctions.

Thus, when the dust settled, there was no reason at all to have a trial on whether either side had infringed the patents of the other. In a subsequent piece written for The Atlantic, grandly entitled “Why There are Too Many Patents in America,” Posner delivered a general critique of the patent system, discussing the broader issues involved in his judicial decision.

There is much of interest, as always, in Epstein’s column.  But the closing section on damages and injunctions is where the action is:

What is so striking about Posner’s relentless dissection of the imprecision in these claims was that he could apply it with equal conviction in any patent software dispute. The estimates of damages under the law are not confined to a single standard, but often involve an uncertain choice between reasonable royalties for licensing the patent and actual damages that were incurred because the patents were not licensed. The injunctive relief is (or at least should be) awarded precisely because it is so difficult to figure out what those damages really ought to be.

But Posner said that he would not allow an injunction if the best that the plaintiffs could garner was $1 in nominal damages. That surely seems over the top, because if there is infringement, the one number that is manifestly wrong is $1. A more sensible approach here, therefore, is to mix and marry the two remedies, so that the injunction does not pull the past product off the market, but awards some damages for past losses, while giving the infringer some period of time—say three to six months—to invent around the patent for future output. This then sets the stage for a negotiated license if that is cheaper.

By putting the remedial cart before the liability horse, we have the odd situation that no one can find out anything about the strength of the patent or the potential range of damages. If that is done on a common basis, then we will have knocked out the entire patent system for software, without having the slightest idea of the relative strength of the Apple and Motorola contentions.

The Posner decision looks doubly worrisome against the backdrop of his ominous Atlantic column, which shows his ill-concealed disdain for a complex industry with which he has had no direct engagement. It is an odd way to make patent policy. Right now, a similar Apple-Samsung dispute is before Judge Lucy Koh, which will involve a real trial. The Posner opinion is already on the fast track to appeal before the Federal Circuit, which will give us more information as to whether these submarine assaults on the patent system will take hold. Let us hope that Posner’s mysterious patent adventurism dies a quick and deserved death.

Do go read the whole thing.  For interested readers, here is Posner’s Atlantic column.

Filed under: business, economics, entrepreneurship, intellectual property, licensing, litigation, markets, patent, technology

Food trucks must remain at least 200 feet away from restaurants under the new Chicago regulation (HT: Reason).  It also appears food trucks must carry a GPS that will allow detection of violations (parking within 200 feet of a restaurant — apparently, any restaurant) which carry a fine of up to $2,000.  Protection of restaurants is the obvious and apparently express rationale for the restraint imposed upon food trucks:

“We see no health or safety justification behind the 200-foot rule, and the city has never offered one,” says Kregor. “The only explanation for the rule is the restaurants’ demand for protectionism and the city government’s deference to those demands.”  That’s no exaggeration. Even supporters of the new regulations freely admit they’re designed to protect brick-and-mortar restaurants.  “We want food trucks to make money, but we don’t want to hurt brick-and-mortar restaurants,” says Alderman Walter Burnett.

Chicago’s Institute for Justice has more.

I continue to think, as I’ve mentioned here previously, the consumer welfare losses associated with local and city barriers to entry are greatly underestimated.

Filed under: barriers to entry, business, economics, food

In light of Barclays and other recent events, The Economist focuses on increasing corporate fines in response to price-fixing violations.

That some firms behave badly is nothing new, but the response of the authorities has changed recently. Take cartels. Internationally, fines rose by a factor of one thousand between the 1990s and 2000s. Data from America suggest this is not because there are more cartel cases, which have shown no upward trend since the late 1980s. Rather, the average level of fines has risen (see left-hand chart). Recent penalties have smashed records. The Barclays fine includes the largest ever levied by Britain’s financial regulator and America’s Commodity Futures Trading Commission, for instance. Even so, are fines high enough to work?

The article goes on to discuss the Becker optimal sanction framework.  It also makes some important mistakes in framing the debate.  For example, it describes the Chicago School approach has rejecting corporate or individual fines in lieu of the reputational costs antitrust violators will bear.  The article reaches an unsurprising conclusion consistent with the historical approach of U.S. antitrust and with conventional wisdom: what is needed is more increases in corporate fines.

To deter bad behaviour fines need to rise. The watchdogs are biting, but some need sharper teeth.

For reasons described in my article with Judge Ginsburg (D.C. Circuit Court of Appeals; NYU Law), Antitrust Sanctions, I’m skeptical ever-increasing corporate fines are the appropriate prescription for improving deterrence of hard core cartel activity.   Competition Policy International (who published the original article) interviews Judge Ginsburg and I here.  We discuss existing evidence on the effectiveness of criminal antitrust sanctions and propose adding to the mix debarment for individuals responsible for cartel activity.

Filed under: antitrust, cartels, economics

In the WSJ, Professor Macey takes measure of the CFPB’s new mortgage disclosures and finds them lacking:

The CFPB is proposing to revise the old forms into a new Loan Estimate Form and Closing Disclosure Form. The old loan form had been five pages; according to the agency website, the new one is three. The closing form remains at five pages. That’s a net savings of two pieces of paper. But the agency rules required to implement the new forms weigh in at an astonishing 1,099 pages.

In evaluating the substance of the new disclosure themselves, Macey concludes the new forms are likely to harm consumers rather than help them.

Do the new rules expand consumer choice? They would forbid many borrowers from making smaller payments every month, followed by a single, one-time balloon payment to retire the principal at the end. They also would cap late fees—which means borrowers would be unable to get a lower interest rate on a loan by agreeing to pay a penalty if they don’t make their payments on time.

The new rules restrict loan-modification fees, which means mortgagors will offer fewer options to do so. They restrict penalties on borrowers who pay off their home loans early. These prepayment fees compensate lenders for the risk of lower returns on their loans. Without this protection they will either decline to offer loans to some borrowers or charge a higher interest rate.

The government’s proposed rules require high-risk customers in high-cost loan markets to meet with financial counselors before taking out a loan. The regulators also want to expand dramatically the number of mortgages classified as high cost. But financial counselors will have to be compensated, whether their advice is good or bad. The law deprives these consumers of the right to do their own homework.

Oddly, hidden on the new disclosure forms is the Annual Percentage Rate. For decades the APR was front and center on government-mandated disclosure documents. It is the single number that shows borrowers the cost of borrowing including such factors as the interest rate, certain fees, and the maturity structure of the loan.

The CFPB claims its consumer testing showed people didn’t understand the APR. Yet if someone is trying to compare two loans—one with a lower interest rate and $15,000 in fees, the other with lower fees but a higher interest rate—it’s not possible to determine which loan is cheaper without the APR.  The new rules do not attempt to generate a single number that can be used for comparison purposes and instead focus on various components of the loan such as fees, penalties, interest rates and maturity separately. This makes it harder, not easier, for borrowers to compare mortgage options.

Ultimately, we will be able to evaluate the impact of these new disclosures empirically by watching the results of the CFPB’s “experiment.”

Filed under: consumer financial protection bureau, consumer protection, economics