Search Results

The paper is here (HT: Steve Salop).  The AER’s The Top 20 Committee, consisting of Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow, made the selections.  The list is alphabetical, of course, but TOTM readers will observe that it starts off particularly well (see here and here).   A few interesting things jump out, e.g. the multiple appearances from Peter Diamond (and James Mirrlees).  Any big errors or omissions?

Here’s the list:

Alchian, Armen A., and Harold Demsetz. 1972. “Production, Information Costs, and Economic Organization.” American Economic Review, 62(5): 777–95.

Arrow, Kenneth J. 1963. “Uncertainty and the Welfare Economics of Medical Care.” American Economic Review, 53(5): 941–73.

Cobb, Charles W., and Paul H. Douglas. 1928. “A Theory of Production.” American Economic Review, 18(1): 139–65.

Deaton, Angus S., and John Muellbauer. 1980. “An Almost Ideal Demand System.” American Economic Review, 70(3): 312–26.

Diamond, Peter A. 1965. “National Debt in a Neoclassical Growth Model.” American Economic
Review, 55(5): 1126–50.

Diamond, Peter A., and James A. Mirrlees. 1971. “Optimal Taxation and Public Production I: Production Efficiency.” American Economic Review, 61(1): 8–27.

Diamond, Peter A., and James A. Mirrlees. 1971. “Optimal Taxation and Public Production II: Tax
Rules.” American Economic Review, 61(3): 261–78.

Dixit, Avinash K., and Joseph E. Stiglitz. 1977. “Monopolistic Competition and Optimum Product
Diversity.” American Economic Review, 67(3): 297–308.

Friedman, Milton. 1968. “The Role of Monetary Policy.” American Economic Review, 58(1): 1–17.

Grossman, Sanford J., and Joseph E. Stiglitz. 1980. “On the Impossibility of Informationally Efficient Markets.” American Economic Review, 70(3): 393–408.

Harris, John R., and Michael P. Todaro. 1970. “Migration, Unemployment and Development: A Two-Sector Analysis.” American Economic Review, 60(1): 126–42.

Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30.

Jorgenson, Dale W. 1963. “Capital Theory and Investment Behavior.” American Economic Review, 53(2): 247–59.

Krueger, Anne O. 1974. “The Political Economy of the Rent-Seeking Society.” American Economic
Review, 64(3): 291–303.

Krugman, Paul. 1980. “Scale Economies, Product Differentiation, and the Pattern of Trade.” American Economic Review, 70(5): 950–59.

Kuznets, Simon. 1955. “Economic Growth and Income Inequality.” American Economic Review,
45(1): 1–28.

Lucas, Robert E., Jr. 1973. “Some International Evidence on Output-Inflation Tradeoffs.” American Economic Review, 63(3): 326–34.

Modigliani, Franco, and Merton H. Miller. 1958. “The Cost of Capital, Corporation Finance and the
Theory of Investment.” American Economic Review, 48(3): 261–97.

Mundell, Robert A. 1961. “A Theory of Optimum Currency Areas.” American Economic Review,
51(4): 657–65.

Ross, Stephen A. 1973. “The Economic Theory of Agency: The Principal’s Problem.” American Economic Review, 63(2): 134–39.

Shiller, Robert J. 1981. “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in
Dividends?” American Economic Review, 71(3): 421–36.

Filed under: armen alchian, economics

OK.  Big news for me, anyway.  I’m very pleased to announce that I will be joining Andy Gavil, (also my former boss) William Kovacic, and Jonathan Baker as a co-author of the forthcoming Third Edition of Antitrust Law in Perspective: Cases, Concepts and Problems in Competition Policy.

The new edition should be available for Spring 2012 adoptions, and will contain significant updates reflective of important developments in antitrust law since 2003, including the 2010 Horizontal Merger Guidelines amongst other things.  As the co-authors are also Washington DC-area antitrust profs, I’ve had the opportunity to get to know Andy, Bill and Jon over the past several years and am greatly looking forward to contributing to working with them on the textbook I’ve been using for years!

Filed under: antitrust, law school

And other lessons in the (applied) economics of marriage (HT: Mankiw).

Filed under: behavioral economics, economics, marriage

Jon Baker (FCC, American University) has posted an article summarizing the FCC’s analysis of the Comcast-NBCU merger.  Here is the abstract.

The FCC’s analysis of the Comcast-NBCU transaction fills a gap in the contemporary treatment of vertical mergers by providing a roadmap for courts and litigants addressing the possibility of anticompetitive exclusion. The FCC identified the factors any judicial or administrative tribunal would likely consider today in analyzing whether a vertical merger would lead to anticompetitive input or customer foreclosure, and a range of economic methods potentially relevant to applying that template to the facts of a transaction. Notwithstanding the difference between administrative adjudication under a public interest standard and judicial decision-making under the Clayton Act, the legal framework and economic studies the Commission employed promise to influence the approach that antitrust tribunals will now take in evaluating vertical mergers.

Its well worth reading and provides a good summary of the FCC’s analysis of the transaction (which is also worth reading in its entirety).

As we’ve highlighted, however, notwithstanding the fact that the FCC’s general framework for economic analysis of the merger was consistent with modern antitrust analysis (its hard to comment on anything but the general framework of economic analysis without delving deeply into the details, which I have not done yet), its tough to swallow the Comcast-NBCU Order as a “roadmap” or model given the long list of non-merger specific conditions imposed by the Commission (see here for a list).  The breadth of the conditions tends to undermine the claims that FCC merger review process, or components of it, should be exported.  The Joint Concurrence of Commissioners McDowell and Baker notes a similar objection:

The Commission’s approach to merger reviews has become excessively coercive and lengthy. This transaction is only the most recent example of several problematic FCC merger proceedings that have set a trend toward more lengthy and highly regulatory review processes that may discourage future transactions and job-creating investment.

In this instance, our review exceeded its limited statutory bounds. Many of the conditions in the Memorandum Opinion and Order (Order) and commitments outlined in separate letter agreements were agreed to by the parties. The resulting Order is a wide-ranging regulatory exercise notable for its “voluntary” conditions that are not merger specific. The same is true for the separate “voluntary” commitments outlined in Comcast’s letter of agreement dated January 17, 2011. While many of these commitments may serve as laudable examples of good corporate citizenship, most are not even arguably related to the underlying transaction. In short, the Order goes too far.

Filed under: antitrust, economics, merger guidelines, mergers & acquisitions, regulation, scholarship, technology, television

One of my favorite stories in the ongoing saga over the regulation (and thus the future) of Internet search emerged earlier this week with claims by Google that Microsoft has been copying its answers–using Google search results to bolster the relevance of its own results for certain search terms.  The full story from Internet search journalist extraordinaire, Danny Sullivan, is here, with a follow up discussing Microsoft’s response here.  The New York Times is also on the case with some interesting comments from a former Googler that feed nicely into the Schumpeterian competition angle (discussed below).  And Microsoft consultant (“though on matters unrelated to issues discussed here”)  and Harvard Business prof Ben Edelman coincidentally echoes precisely Microsoft’s response in a blog post here.

What I find so great about this story is how it seems to resolve one of the most significant strands of the ongoing debate–although it does so, from Microsoft’s point of view, unintentionally, to be sure.

Here’s what I mean.  Back when Microsoft first started being publicly identified as a significant instigator of regulatory and antitrust attention paid to Google, the company, via its chief competition counsel, Dave Heiner, defended its stance in large part on the following ground:

All of this is quite important because search is so central to how people navigate the Internet, and because advertising is the main monetization mechanism for a wide range of Web sites and Web services. Both search and online advertising are increasingly controlled by a single firm, Google. That can be a problem because Google’s business is helped along by significant network effects (just like the PC operating system business). Search engine algorithms “learn” by observing how users interact with search results. Google’s algorithms learn less common search terms better than others because many more people are conducting searches on these terms on Google.

These and other network effects make it hard for competing search engines to catch up. Microsoft’s well-received Bing search engine is addressing this challenge by offering innovations in areas that are less dependent on volume. But Bing needs to gain volume too, in order to increase the relevance of search results for less common search terms. That is why Microsoft and Yahoo! are combining their search volumes. And that is why we are concerned about Google business practices that tend to lock in publishers and advertisers and make it harder for Microsoft to gain search volume. (emphasis added).

Claims of “network effects” “increasing returns to scale” and the absence of “minimum viable scale” for competitors run rampant (and unsupported) in the various cases against Google.  The TradeComet complaint, for example, claims that

[t]he primary barrier to entry facing vertical search websites is the inability to draw enough search traffic to reach the critical mass necessary to become independently sustainable.

But now we discover (what we should have known all along) that “learning by doing” is not the only way to obtain the data necessary to generate relevant search results: “Learning by copying” works, as well.  And there’s nothing wrong with it–in fact, the very process of Schumpeterian creative destruction assumes imitation.

As Armen Alchian notes in describing his evolutionary process of competition,

Neither perfect knowledge of the past nor complete awareness of the current state of the arts gives sufficient foresight to indicate profitable action . . . [and] the pervasive effects of uncertainty prevent the ascertainment of actions which are supposed to be optimal in achieving profits.  Now the consequence of this is that modes of behavior replace optimum equilibrium conditions as guiding rules of action. First, wherever successful enterprises are observed, the elements common to these observable successes will be associated with success and copied by others in their pursuit of profits or success. “Nothing succeeds like success.”

So on the one hand, I find the hand wringing about Microsoft’s “copying” Google’s results to be completely misplaced–just as the pejorative connotations of “embrace and extend” deployed against Microsoft itself when it was the target of this sort of scrutiny were bogus.  But, at the same time, I see this dynamic essentially decimating Microsoft’s (and others’) claims that Google has an unassailable position because no competitor can ever hope to match its size, and thus its access to information essential to the quality of search results, particularly when it comes to so-called “long-tail” search terms.

Long-tail search terms are queries that are extremely rare and, thus, for which there is little user history (information about which results searchers found relevant and clicked on) to guide future search results.  As Ben Edelman writes in his blog post (linked above) on this issue (trotting out, even while implicitly undercutting, the “minimum viable scale” canard):

Of course the reality is that Google’s high market share means Google gets far more searches than any other search engine. And Google’s popularity gives it a real advantage: For an obscure search term that gets 100 searches per month at Google, Bing might get just five or 10. Also, for more popular terms, Google can slice its data into smaller groups — which results are most useful to people from Boston versus New York, which results are best during the day versus at night, and so forth. So Google is far better equipped to figure out what results users favor and to tailor its listings accordingly. Meanwhile, Microsoft needs additional data, such as Toolbar and Related Sites data, to attempt to improve its results in a similar way.

But of course the “additional data” that Microsoft has access to here is, to a large extent, the same data that Google has.  Although Danny Sullivan’s follow up story (also linked above) suggests that Bing doesn’t do all it could to make use of Google’s data (for example, Bing does not, it seems, copy Google search results wholesale, nor does it use user behavior as extensively as it could (by, for example, seeing searches in Google and then logging the next page visited, which would give Bing a pretty good idea which sites in Google’s results users found most relevant)), it doesn’t change the fundamental fact that Microsoft and other search engines can overcome a significant amount of the so-called barrier to entry afforded by Google’s impressive scale by simply imitating much of what Google does (and, one hopes, also innovating enough to offer something better).

Perhaps Google is “better equipped to figure out what users favor.”  But it seems to me that only a trivial amount of this advantage is plausibly attributable to Google’s scale instead of its engineering and innovation.  The fact that Microsoft can (because of its own impressive scale in various markets) and does take advantage of accessible data to benefit indirectly from Google’s own prowess in search is a testament to the irrelevance of these unfortunately-pervasive scale and network effect arguments.

Filed under: antitrust, armen alchian, business, google, markets, monopolization, technology Tagged: antitrust, Armen Alchian, Bing, Danny Sullivan, economies of scale, google, Google Search, Internet search, microsoft, minimum viable scale, network effects

Abstract

The recent increase in the demand for expert economic analysis in antitrust litigation has improved the welfare of economists; however, the law and economics literature is silent on the effects of economic complexity or judges’ economic training on judicial decision-making. We use a unique data set on antitrust litigation in federal district and administrative courts during 1996-2006 to examine whether economic complexity impacts antitrust decisions, and provide a novel test of the hypothesis that antitrust analysis has become too complex for generalist judges. We also examine the impact of basic economic training by judges. We find that decisions involving the evaluation of complex economic evidence are significantly more likely to be appealed, and decisions of judges trained in basic economics are significantly less likely to be appealed than are decisions by their untrained counterparts. Our analysis supports the hypothesis that some antitrust cases are too complicated for generalist judges.

It’s pretty hard to cycle through the University of Chicago Law School (or at least it used to be back when I was a student) without gaining an appreciation for the extent to which markets, while subject to occasional failures, enhance human welfare by channeling resources to their highest and best ends. It’s also hard to spend much time at Chicago without coming to understand that government interventions, despite the best intentions of the planners, often fail, given planners’ limited knowledge (see, e.g., Hayek) and bureaucrats’ tendencies to act, like the rest of us, in a self-interested fashion (see, e.g., the public choice literature). Indeed, even left-leaning Chicagoans like Cass Sunstein, for whom I have tremendous respect, appreciate these ideas and therefore tend to advocate (somewhat) limited government interventions that are targeted at real market failures and that preserve space for private ordering. (See, e.g., Sunstein’s “libertarian paternalism,” which has occasionally been derided on this blog but is a far cry from the “paternalist paternalism” we’ve been seeing from the current Administration.)

When President Obama was elected, I hoped and expected that his time at Chicago would influence his policy prescriptions. It hasn’t done so. Not only did he push through two of the most market-insensitive and government-confident pieces of legislation in modern history (the stimulus and the health care law), but even his “move to the center” speech following a mid-term shellacking advocated central planning in the form of pick-the-winner “investments” in green technologies, high-speed rail, etc. His answer to economic stagnation isn’t sound money and the creation of institutions that permit entrepreneurs to flourish without fear of excessive regulation and confiscation. Instead, he wants government to step up and push America forward, as it did in the space race with the Russians: “This is our generation’s Sputnik moment!”

I’ve often wondered how Mr. Obama managed to spend so many years at Chicago without absorbing the ideas that seem to saturate the place. Richard Epstein offers an answer in today’s Wall Street Journal (which quotes an interview Epstein gave to Reason TV):

Reason: The economy has lost 3.3 million jobs, consumer confidence is half its historical average, and unemployment is 9 percent. To what extent is Obama responsible for this?

Richard Epstein: He’s not largely or exclusively responsible, but he’s certainly added another nail into the coffin. The early George Bush—I think he got a little bit better through his term—and Obama have a lot in common. Bush wanted a pint-sized stimulus program that failed and Obama wanted a giant-sized stimulus program that failed. Neither of them is a strong believer in laissez-faire principles. The difference between them, which is why Obama is the more dangerous man ultimately, is he has very little by way of a skill set to understand the complex problems he wants to address, but he has this unbounded confidence in himself.

Reason: So he’s the perfect Chicago faculty member.

Epstein: He was actually a bad Chicago faculty member in this sense: He was an adjunct, and we always hoped he’d participate in the general intellectual discourse, but he was always so busy with collateral adventures that he essentially kept to himself. The problem when you keep to yourself is you don’t get to hear strong ideas articulated by people who disagree with you. So he passed through Chicago without absorbing much of the internal culture.

So that’s it….

Filed under: markets, musings, politics

Don Boudreaux explains the distinction with reference to President Obama’s State of the Union address.

Filed under: business, economics, politics

The Workshop on Empirical and Experimental Methods for Law Professors is designed to teach law professors the conceptual and practical skills required to (1) understand and evaluate others’ empirical studies, and (2) design and implement their own empirical studies. Participants are not expected to have background in statistical knowledge or empirical skills prior to enrollment. Instructors have been selected in part to demonstrate the development of empirical studies in a wide-range of legal and institutional settings including: antitrust, business law, bankruptcy, class actions, contracts, criminal law and sentencing, federalism, finance, intellectual property, and securities regulation. Class sessions will provide participants opportunities to learn through faculty lectures, drawing upon data and examples for cutting edge empirical legal studies, and participating in experiments. There will be numerous opportunities for participants to discuss their own works-in-progress or project ideas with the instructors.

WORKSHOP FACULTY:

David Abrams, Ph.D., University of Pennsylvania School of Law, http://www.law.upenn.edu/cf/faculty/dabrams/

Eric Helland, Ph.D., Claremont-McKenna College, http://www.cmc.edu/academic/faculty/profile.asp?Fac=159

Jonathan Klick, J.D., Ph.D., University of Pennsylvania School of Law, http://www.law.upenn.edu/cf/faculty/jklick/

Bruce Kobayashi, Ph.D., George Mason University School of Law, http://www.law.gmu.edu/faculty/directory/fulltime/kobayashi_bruce

Kevin McCabe, Ph.D., George Mason University School of Economics and Law, http://www.law.gmu.edu/faculty/directory/fulltime/mccabe_kevin

Joshua Wright, J.D., Ph.D., George Mason University School of Law, http://www.law.gmu.edu/faculty/directory/fulltime/wright_joshua

SCHEDULE:

The Workshop will take place at:
George Mason University School of Law
3301 N. Fairfax Drive
Arlington, VA 22201
http://law.gmu.edu

The Workshop will begin on Monday May 23, at 8:30 a.m. and conclude on Thursday May 26, at 12 pm. Classes on May 23, 24 and 25 will run from 8:30 am to 5pm, and include lectures, group sessions, and opportunities for participants to present their own empirical projects or “works in progress.”

Topics covered include:

• Research Design
• Finding Data
• Basic Probability Theory
• Descriptive Statistics
• Formulating Testable Hypotheses
• Specification
• Statistical Inference
• Cross-Sectional Regression
• Time Series Regression
• Panel Data Techniques
• Sensitivity Analysis
• Experimental Methods

REGISTRATION AND TUITION:

Tuition for the Workshop on Empirical and Experimental Methods is $850 for the first professor from a law school and $500 for additional registrants from the same school.

Tuition includes all session materials, access to statistical software (STATA), three lunches, four continental breakfasts, and one evening reception. You will need a laptop for this workshop. A check for $850 made payable to George Mason University Foundation (please note on the check that it is for “Empirical Workshop Tuition”) must be included with the registration form. Registration and payment should be received by May 13, 2011. Space is limited and will be allocated on a first-come, first-accepted basis.

CANCELLATION POLICY:

Full refunds for cancellation of attendance to the Workshop on Empirical and Experimental Methods will be made for all written cancellations received before 5:00 p.m. on Monday, May 16th. No refunds will be given for any cancellations received after Monday, May 16th.

ACCOMMODATIONS:

GMU School of Law is conveniently located across the Potomac from Washington, DC with easy access to the Metro’s Orange Line (Virginia Square Station).

Special hotel rates for workshop participants are available at two hotels within walking distance of the GMU School of Law: the Comfort Inn Ballston, (1211 N. Glebe Rd) at a group rate of $149 per night, and the AKA Virginia Square (3409 Wilson Blvd) at a group rate of $211 per night.

To make a reservation at the Comfort Inn call (703) 247-3399. The hotel’s website can be viewed at:
http://www.comfortinn.com/hotel-arlington-virginia-VA417

To make a reservation at the AKA Virginia Square contact Scott Foster at (202) 904-2505, or by email at [email protected]. The hotel’s website can be viewed at: http://www.hotelaka.com/locations/virginia_square/default.aspx

To obtain the workshop rates, please mention the George Mason School of Law Workshop on Empirical and Experimental Methods. In order to receive these special rates you must book your room by April 23, 2011. There are limited rooms available so please make your reservations as soon as possible.

LEC CONTACT:

Jeff Smith
703-993-8101
[email protected]

Click Here to Apply

Filed under: announcements, economics, george mason university school of law, law and economics, law school, legal scholarship, scholarship