There is an excellent interview of Ronald Coase conducted in honor of Coase’s 100th birthday and the creation of the Coase China Society.  Its an excellent interview (HT: Knowledge Problem).  Peter Klein offers some observations on the interview as well.  One part that caught my attention was Coase’s discussion of the role of the Journal of Law & Economics in advancing the law and economics movement:

RC (Ronald Coase): One way for the [Coase China] Society to advance the right kind of economics to China, and encourage Chinese economists to do the right kind of work, is to have a journal of its own. When I was editor of the Journal of Law and Economics, I was very active. I would attend seminars and conferences and talk to people to see what kind of research they were doing. I would solicit their articles if I thought they were good ones. And frequently, I would talk to people and encourage them to conduct certain studies with the promise to publish their article.

WN (Wang Ning): This is indeed very different from the way journals are run now.

RC: I do not believe any other journal was run the same way then. Most journal editors wait for submitted articles and use external reviewers to select the articles for publication. This was not the way I worked. I knew what kind of articles I would like to publish, and I went around to find people to write them.

I’ll give you an example. Bernard Siegan came to the University of Chicago Law School as a Fellow and proposed to write a paper on the pros and cons of zoning. I told him instead to find a place where zoning did not exist and to see what happened to land use in comparison to places with zoning. He wrote a great paper about land use in Houston which did not have zoning (The paper was published as “Non-Zoning in Houston, Journal of Law and Economics (1970)).

Another example is Steve’s article on bees. I knew there were contracts between beekeepers and orchard owners in Washington. I asked Steve to investigate it. He did a splendid study (The paper was published as “The Fable of Bees, in Journal of Law and Economics (1973)). …

WN: … But the opportunity cost was probably very high. At the prime time of your research, you devoted yourself to the Journal instead of your own research. You might have written another one or two articles as great as “The Nature of the Firm” or “The Problem of Social Cost.”

RC: I do not regret my decision at all. This was the main attraction for me to come to Chicago. I think this was the only way to develop a subject. If it were not for the Journal, many articles would not have been published or even written.

WN: Based on your experience, what should the Society do if it launches a new journal?

RC: You should have a clear view of what you want to accomplish, what articles you want to publish and what kind of research you want to encourage. You shall not worry about how other people think about your views. You cannot control what other people think. You will not monopolize the whole field. If you believe in your view, you have to be strong to defend it and promote it in the market for ideas until you are convinced that it is proved wrong. This is the only way to be independent.

WN: I totally agree. But I don’t think we have got the second Coase yet. When you started editing the Journal of Law and Economics, you were already well established in the profession. Your view, no matter whatever it was, would be considered seriously and readily command agreement.

RC: I do not think that was the case. I always find myself in disagreement with the prevailing view. Even today, my view of the subject is not accepted by the profession. …

Very interesting.  I cannot think of many examples of journals that take this approach, at least to the same degree as Coase’s JLE.  But that sort of focus was probably necessary to get the law and economics movement off the ground.  Are there examples of journals with this kind of agenda, i.e. where the editor “knew what kind of articles [they] would like to publish, and [] went around to find people to write them”?  Do any of the modern law and economics journals operate this way?  I don’t think so.  But maybe I’m wrong.  What about in empirical legal studies?  David Evans’ very successful Competition Policy International journal operates largely through soliciting articles on antitrust topics from specific authors — and so has some of this flavor, but (and I should disclose I am an editor of that journal) I do not think it has a “mission” in the same sense as Coase’s use of the term in describing the role of the JLE.

Check out the entire interview.

As a result of the FTC’s “Operation Short Change,” a number of firms and individuals have settled claims that they swindled millions from consumers by making unauthorized charges and debits to their bank accounts.  The FTC press release highlights that, in addition to a $2.08 million fine (judgment suspended due to bankruptcy filing), the FTC barred the principal from engaging in a number of related business activities:

Under the settlement Greenberg is banned from owning, controlling, or consulting for any Internet-related business that handles consumers’ credit card or debit card accounts.  He also is prohibited from making unauthorized charges to consumers’ accounts, making false or misleading statements while selling any goods or services, and using any false or assumed name, including an unregistered, fictitious company name, in his business dealings.

As Douglas Ginsburg and I point out in our piece on Antitrust Sanctions in Competition Policy International, debarment of this sort is common in these FTC enforcement actions, at the SEC for other forms of white collar crime (e.g. debarring a director from sitting on the board of a publicly traded company), and as an antitrust sanction for naked price-fixing in a number of countries, e.g. in the U.K. pursuant to the Company Directors Disqualification Act of 1986.

Debarment, however, is not currently in the mix of antitrust sanctions employed by the DOJ in criminal antitrust enforcement actions.  In the article, we make the case that debarment is desirable from an optimal deterrence perspective:

The U.S. Department of Justice should consider taking a similar approach to sentencing individuals convicted of a criminal violation of § 1 of the Sherman Act. We are aware of no reason for which the Department needs to wait for statutory authority to get started, as did the SEC, by negotiating consent orders providing for debarment.74 Prosecutors might, for example, if the conditions for leniency are met, agree to allow individual defendants to reduce or avoid jail time, in return for debarring them from working as a manager or director of any publicly traded corporation or for any company in a particular industry if it is either located in or sells into the United States.75

Negotiated orders of debarment would allow the Antitrust Division to accrue much of the benefit of a prison sentence—publicizing the offense and keeping the offender from recidivating— without undertaking the risk and cost of a criminal trial. The period of debarment should be calibrated to have the same average deterrent effect as jail.76 Further, as we have pointed out, debarment would bolster currently weak reputational penalties, thereby reducing the need for individual fines, which are less likely to deter efficiently because of individuals’ wealth constraints.

Read the whole thing.

The WSJ reports that the DOJ is getting itself ready to challenge the Google-ITA merger (see earlier TOTM posts here and here):

Justice Department staff lawyers have begun preparing legal documents for use in a possible court challenge to the $700 million deal for ITA Software Inc., but no decision to proceed has been made, one of the people familiar with the matter said.  Google, of Mountain View, Calif., recently told the government it had complied with all requests for information about the ITA deal, this person said. That milestone typically gives the agency 30 days to decide whether to take action, though such deadlines can be extended. The government is expected to make its decision later this month or in early February, this person added.

The potential theory is that Google, post-merger, would exclude rivals from cutting off access to ITA’s software:

Government lawyers have asked executives in the $80 billion online travel market if Google could unfairly disadvantage potential new rivals by cutting off their access to ITA’s software, people familiar with the questioning have said.  The lawyers also inquired about whether Google would direct users of its search engine to the travel-search service it plans to build around ITA’s technology, to the detriment of soon-to-be rivals that currently get traffic from Google’s search engine, these people said. Google currently directs users searching for travel itineraries to Kayak.com and other sites.

Some commentators have discussed the inclusion of Section 2 in the list of statutes enforced by the antitrust agencies through merger policy and the language in the HMGs overview stating that “Enhanced market power may also make it more likely that the merged entity can profitably and effectively engage in exclusionary conduct.”   Section 2.2.3 of the new HMGs also observes that  “rival firms may provide relevant facts, and even their overall views may be instructive, especially in cases where the Agencies are concerned that the merged entity may engage in exclusionary conduct.”   It looks like these new sections of the Guidelines may be tested early on.

I’m tentatively skeptical about the value of embedding this exclusion analysis so prominently within the Guidelines, and more specifically, bringing merger challenges on the grounds of the likelihood of future exclusion.  In my view, we know so little about the relevant inputs to designing such a policy (how often do exclusion problems arise, how large are the anticompetitive effects, can we identify these cases ex ante?) that it seems unwise.  As antitrust analysts well know, there is much more disagreement over issues surrounding exclusion than purely horizontal mergers (see, e.g., the Section 2 Report episode).  Predicting the effects of horizontal mergers can be difficult enough in its own right.  But this raises the issue of why the DOJ would make a challenge under Section 7 of the Clayton Act rather than waiting.  It appears that the DOJ is quite willing to use Section 2 of the Sherman Act.  If there is some uncertainty over whether Google’s post-merger incentives will lead to increased efficiencies (as Google claims) or conduct that excludes rivals and makes consumers worse off — and as with most monopolization cases there appears to be significant debate on this issue — why not wait and see?  If Google’s conduct is anticompetitive, surely the DOJ or FTC can bring suit under Section 2 or even Section 5 of the FTC Act.    The conventional argument in merger cases is that a post-consummation remedy requires “unscrambling the eggs.”  Is that true here?  Wouldn’t the remedy that would be imposed here some non-discriminatory licensing requirement?  There are other costs of inserting a pre-emptive exclusionary conduct review into merger analysis.  Nearly any merger that might increase a firm’s market power could potentially increase incentives to discriminate against or foreclose rivals.  However, the same merger also can lead to greater efficiencies.  It is hard to imagine a horizontal merger where one could not imagine some form of exclusion theory with all sorts of forward-looking statements from the agencies about the likelihood of exclusion post-merger.  Embedding the Section 2 mess into merger analysis hardly seems a step toward certainty and providing guidance to firms.

The treatment of these theories in Google-ITA will be watched very closely.

In conjunction with Ronald Coase’s new book on China, he’s given a new interview to his co-author Ning Wang. (HT: Paul Walker via Mike Giberson.) Excerpt…

Read the full piece here.

The titular question is posed by Louis Kaplow (Harvard) in a recent piece in the Harvard Law Review that I suspect will attract a fair amount of attention.   I may have more to say about this later, but for now, here is the abstract:

Competition law is dominated by the market definition / market share paradigm, under which a relevant market is defined and pertinent market shares therein are examined in order to make inferences about market power. This Article advances the immodest claim that the market definition process is incoherent as a matter of basic economic principles and hence should be abandoned entirely. This conclusion rests on four arguments. First, meaningful inferences of market power in redefined markets cannot be made. Second, the paradigm relies on an unarticulated notion of a standard reference market whose necessity and prior omission signal a serious gap. Third and most important, determining what market definition is best is impossible without first formulating a best estimate of market power, rendering further analysis pointless and possibly leading to erroneous outcomes. Finally, the need to define markets engenders a mistaken focus on cross-elasticities of demand for particular substitutes rather than on the market elasticity of demand, which further reduces the quality of resulting market power inferences. Although the inquiry is conceptual, brief remarks on legal doctrine suggest that creating conformity may not be unduly difficult.

Check out the whole thing.

The AP Reports:

The Justice Department is investigating claims of anticompetitive behavior by shipping companies FedEx Corp. and UPS Inc.

Los Angeles antitrust attorney Maxwell Blecher said in a sworn court document filed last month that on Nov. 22 a trial attorney in the Justice Department’s antitrust division called him and said they had begun a formal investigation of UPS and FedEx.

The Justice Department declined to confirm the investigation on Friday. FedEx and UPS say they are aware of the investigation.

Blecher represents a firm called AFMS Logistics Management Group that helps companies negotiate lower rates from UPS and FedEx. The company’s federal lawsuit accuses UPS and FedEx of announcing on the same day that they would no longer deal with such consultants. Blecher said on Friday that the moves were “devastating” for AFMS’s business.

The underlying private civil case is AFMS LLC v. United Parcel Service Co., (10-cv-5830, U.S. District Court, Central District of California (Los Angeles)).  I do not have a copy of the complaint in that case which references the DOJ investigation, but will post if I do.

UPDATE: Here is a copy of the complaint (HT: Dale Collins).  Briefs are also available here.

C. Boyden Gray and John Shu offer a very helpful discussion on this issue in an article in Engage.  Here is the abstract:

President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank” or “the Act”) into law on July 21, 2010. The massive and complex Act is reportedly the result of many compromises. Dodd-Frank’s intent, according to its title page, is “[t]o promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”

Of particular interest to me was this portion of the discussion of the Bureau of Consumer Financial Protection (BCFP):

One of the BCFP’s stated objectives is to protect consumers “from unfair, deceptive, or abusive acts and practices and from discrimination.”75 The BCFP may halt a company or service provider from “committing or engaging in an unfair, deceptive, or abusive act or practice” with respect to offering or transacting in a consumer financial product or service.76 In fact, Dodd-Frank makes it unlawful for consumer financial product companies or service providers to “engage in any unfair, deceptive, or abusive act or practice.”77 The Act extends this liability to any entity that “knowingly or recklessly provide[d] substantial assistance” to the offender.78

clearly defi ne vague terms such as “unfair,” “deceptive,” “abusive,” and “discrimination.” BCFP is vested with the sole discretion to decide what those terms mean and how they are applied to consumer financial products and services and the consumer financial industry.79 For example, Dodd- Frank defines an act or practice as “abusive” if it “materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service,” or if it takes “unreasonable advantage” of a consumer’s “lack of understanding” of the “material risks, costs, or conditions of the product or service” or a consumer’s “inability” to protect his own interests “in selecting or using a consumer financial product or service.”80 Given that each and every consumer has different abilities to understand a term, condition, material risk, and cost; and each and every consumer has varying levels of ability—or desire—to protect his own interests, the Act’s standard can readily be caricatured as “we know it when we see it.”

Moreover, the Act does not seem to include the concepts of deception or fraud with respect to the term “abusive,” which would mean that the BCFP could still declare illegal products and services whose terms, conditions, risks and costs are fully disclosed, so long as the BCFP labels them “abusive.” Moreover, the BCFP’s charter
is so vast that its power could be characterized as including the practical authority to re-write consumer financial protection laws if it chooses to do so. Accordingly, it is reasonable to argue that Congress must do the re-writing, not an agency that escapes
meaningful oversight.

Those challenging Dodd-Frank will maintain that Congress structured the BCFP in such a way that it unconstitutionally escapes both Article I and Article II oversight. The key is that the Act houses the BCFP within the Federal Reserve, thereby placing one protected entity (the BCFP) within another (the Fed).81

The article provides a good summary of the provisions of Dodd-Frank as well.

Professor Bainbridge passes along the sad news that UCLA Law’s Arthur Rosett has passed.  Professor Rosett my my contracts professor at UCLA in my first year of law school.  The LA Times Obituary hits the highlights of Professor Rosett’s legal career:

Arthur was a distinguished legal scholar and esteemed member of the faculty at the UCLA School of Law for over 35 years. His areas of expertise included contract law, international business transactions, comparative law and Jewish law. He published numerous books and articles during his long academic career, and enjoyed lecturing at various institutions throughout the world. Upon graduating from Columbia Law School in 1958, Arthur served as a law clerk to Chief Justice Earl Warren of the U.S. Supreme Court. During his early career, Arthur also served as an Assistant U.S. Attorney for the Southern District of New York. Prior to joining the UCLA faculty 1967, Arthur served as Associate Director of the President’s Commission on Law Enforcement (The National Crime Commission).
Arthur will be remembered for his high intellect, his dedication to fairness and justice, his sharp wit and love of life. He is survived by his wife, Rhonda K. Lawrence; his three children David Rosett (Consuelo Ruiz Esparza) of Guadalajara, Mexico, Martha Rosett of Sherman Oaks, CA and Danny Rosett of Westlake Village, CA; his two grandsons Benjamin Rosett and Jacob Rosett; and many other family members and friends who loved him. In lieu of flowers, the family requests that memorial donations be made in his name to the following charities: Los Angeles Chapter of the American Parkinson’s Disease Association, www.parkinsonla.org/ or to Hillel at UCLA, www.ucla.hillel.org Services entrusted to Hillside Mortuary (800) 576-1994.

More than any other class during law school, I remember my experience in contracts and think back to it often as I struggle to improve in teaching contract law to my students at George Mason.  Professor Rosett was masterful in the classroom and artful in his teaching methods in ways that I was not capable of appreciating as a young law student  — though I do remember an especially entertaining lecture on Frigaliment.  I draw upon my experiences in his class as a 1L frequently and am grateful to have had the opportunity to be his student.