Abstract

The Twenty-first Amendment repealed prohibition, but granted the states broad power to regulate the distribution and sale of alcohol to consumers within their borders. Pursuant to this authority, states have established a complex web of regulations that limit the ability of beer, wine, and liquor producers to control the distribution of their product. From a consumer welfare perspective, one of the most potentially harmful state alcohol distribution regulations are “post and hold” laws (“PH laws”). PH laws require that alcohol distributors share future prices with rivals by “posting” them in advance, and then “hold” these prices for a specified period of time. Economic theory would suggest that PH laws reduce unilateral incentives for distributors to reduce prices and may facilitate tacit or explicit collusion, both to the detriment of consumers. Consistent with economic theory, we show that the PH laws reduce consumption by 2-8 percent. We also test whether PH laws provide offsetting benefits in the form of reducing a range of social harms associated with alcohol consumption. We find no evidence of such offsetting benefits. Taken together these results suggest that PH laws are socially harmful and result only in a wealth transfer from marginal alcohol consumers, who are unlikely to exert externalities on society, to wholesalers. These results also suggest a socially beneficial role for antitrust challenges to PH laws and similar anticompetitive state regulation. If states wish to reduce the social ills associated with drinking, our results suggest that increasing taxes and directly targeting social harms are superior policy instruments to PH laws.

Josh’s ongoing series on “Nudging Antitrust” and FTC Commissioner Rosch’s recent thoughts on behavioral economics has been excellent and I look forward to the next installment.  Rosch’s speech, not surprisingly, also elicited a strong response from me.  What follows are my thoughts on Rosch’s speech, focusing on some of the same issues Josh addressed in his first post.

Read the full piece here.

I’ve been, for some time, a behavioral law and economics skeptic.  Sometimes this position is confused with skepticism about behavioral economics, as in — believing that behavioral economics itself offers nothing useful to economic science or is illegitimate in some way.   That’s not true.  Now, I have some qualms about the explanatory power of some of the behavioral models as well — but the primary critique (in my view) has always been the threat that behavioral economics will be used as the intellectual cover for regulation judged by the preferences of the regulators rather than rigorous economic analysis of any sort.

Read the full piece here. 

Simon Johnson argues that the conventional antitrust tools of Sherman Act are outdated and ill-equipped to deal with the power of big banks…

Read the full piece here. 

As Congress moves toward likely passage of the colossal Dodd-Frank Wall Street Reform and Consumer Protection Act, it’s worth reflecting that many of the bill’s 2,315 pages have little to do with preventing another financial meltdown and leaves considerable collateral damage in its wake.

Read the full piece here.

Part 1 of this short blog series on “Nudging Antitrust,” focused on defining Commissioner Rosch’s recently articulated vision of behavioral economics as it relates to antitrust and competition policy and its differences with more “conventional” economic approaches that are bound by the rationality assumption.  By the way, one should note that these more conventional approaches include both Chicago and game-theoretic Post-Chicago approaches, though the Commissioner reserves most of his ire for the former.  Today, in Part 2, I’ll turn to Commissioner Rosch’s vision for antitrust policy informed by a particular version of behavioral economics focuses on the Commissioners case against the critiques of behavioral economics as he interprets them.

Read the full piece here. 

Increasingly, the notion that updating antitrust policy with the insights of behavioral economics would significantly improve matters for consumers.   Others have called for more major surgery, favoring an outright rejection of the current economic foundation of antitrust policy — and especially the portions of the foundation “Made in Chicago” — in favor of a new regime based on behavioral economics.  There are plenty of antitrust scholars who’ve begun to make this case, with perhaps Professor Stucke having been the most prolific on this score.  And behavioral economics has provided the intellectual support, or perhaps cover depending on who you ask, for the recent regulatory expansion involving consumer credit.  The issue is also getting more and more attention.  Competition Policy International recently published a symposium issue dedicated to the topic.

Read the full piece here. 

The new Consumer Financial Protection Bureau is right around the corner  Talk has now turned to who might run the powerful agency and what it might do.  The WSJ names names…

Read the full piece here. 

I’ve been struck of late by the level of activity surrounding antitrust exemptions: health care, insurance, beer and wine wholesalers, retail merchants for the purpose of negotiate interchange fees, newspapers, agricultural cooperatives, and sports leagues.  Throw in the high-stakes games being played between rivals to influence the decision-making processes of competition agencies in the US and abroad (and of course, private suits in the US), and it would appear that the insights of public choice for understanding antitrust has never been more important.  Or maybe not.  Consider the following 1982 NY Times article I found discussing the major push for antitrust exemptions in the early 1980s.  There are, of course, earlier examples.  But this one struck me as having some interesting parallels with current times…

Read the full piece here.