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Showing 9 of 43 Publications by Todd J. Zywicki
Amicus Brief Petitioners base their First Amendment argument on two premises: first, that surcharges are “more effective” than discounts at altering consumer behavior; and second, that surcharges and discounts are economically equivalent except for their labels.
Petitioners base their First Amendment argument on two premises: first, that surcharges are “more effective” than discounts at altering consumer behavior; and second, that surcharges and discounts are economically equivalent except for their labels. Under this view, because the only difference between discounts and surcharges is how they are framed, it must be this framing that leads to the difference in consumers’ responses. To explain why Petitioners believe this is true—and, thus, to maintain their claim that New York’s surcharge prohibition is an impermissible restriction on speech—Petitioners and their amici rely on the behavioral economic concepts of “framing” and “loss aversion.” They claim that the State impermissibly wishes to prohibit surcharging because these cognitive biases render surcharge labels more effective than discount labels in altering consumers’ preferred form of payment.
Petitioners’ premises are wrong. There is no sound evidence that the asserted behavioral theories are at work here, or that credit-card surcharging— much less the mere label used to describe the practice—more greatly affects consumers’ chosen method of payment than cash discounting. In fact, some of the studies on which Petitioners and their amici rely suggest the opposite. The Court should not rely, in the absence of sound supporting evidence, on a malleable theory that can be used to support contradictory positions.
Moreover, surcharges and discounts differ in material ways beyond the words used to describe them. Surcharging—but not discounting—enables merchants to engage in certain pricing and sales practices that explain both consumers’ different responses to them, as well as the State’s interest in regulating them differently. And while petitioners lack empirical support for the behavioral claims at the heart of their First Amendment argument, the evidence from countries that permit surcharging reveals that merchants often use surcharges to engage in these types of pricing practices. This Court should thus reject Petitioners’ invitation to base constitutional doctrine on a behavioral hypothesis unsupported by any sound empirical evidence—especially where, as here, that result could potentially expose consumers to the type of conduct that the State’s law seeks to prevent.
Amicus Brief Unlike in a pre-merger investigation, the Federal Trade Commission (“FTC”) did not need to rely on indirect evidence related to market structure to predict the competitive effect of the conduct challenged in this case.
Unlike in a pre-merger investigation, the Federal Trade Commission (“FTC”) did not need to rely on indirect evidence related to market structure to predict the competitive effect of the conduct challenged in this case. McWane’s Full Support Program, which gave rise to the Commission’s exclusive dealing claim, was fully operational—and had terminated—prior to the proceedings below. Complaint Counsel thus had access to data on actual market effects.
But Complaint Counsel did not base its case on such effects, some of which suggested an absence of anticompetitive harm. Instead, Complaint Counsel theorized that McWane’s exclusive dealing could have anticompetitively “raised rivals’ costs” by holding them below minimum efficient scale, and it relied entirely on a self-serving statement by McWane’s chief rival to establish what constitutes such scale in the industry at issue. In addition, Complaint Counsel failed to establish the extent of market foreclosure actually occasioned by McWane’s Full Support Program, did not assess the degree to which the program’s significant exceptions mitigated its anticompetitive potential, and virtually ignored a compelling procompetitive rationale for McWane’s exclusive dealing. In short, Complaint Counsel presented only weak and incomplete indirect evidence in an attempt to prove anticompetitive harm from an exclusive dealing arrangement that had produced actual effects tending to disprove such harm. Sustaining a liability judgment based on so thin a reed would substantially ease the government’s burden of proof in exclusive dealing cases.
Exclusive dealing liability should not be so easy to establish. Economics has taught that although exclusive dealing may sometimes occasion anticompetitive harm, several prerequisites must be in place before such harm can occur. Moreover, exclusive dealing can achieve a number of procompetitive benefits and is quite common in highly competitive markets. The published empirical evidence suggests that most instances of exclusive dealing are procompetitive rather than anticompetitive. Antitrust tribunals should therefore take care not to impose liability too easily.
Supreme Court precedents, reflecting economic learning on exclusive dealing, have evolved to make liability more difficult to establish. Whereas exclusive dealing was originally condemned almost per se, Standard Oil of California v. United States, 337 U.S. 293 (1949) (hereinafter “Standard Stations”), the Supreme Court eventually instructed that a reviewing court should make a fuller inquiry into the competitive effect of the challenged exclusive dealing activity. See Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 329 (1961). In In re Beltone Electronics, 100 F.T.C. 68 (1982), the FTC followed Tampa Electric’s instruction and embraced an economically informed method of analyzing exclusive dealing.
The decision on appeal departs from Beltone—which the FTC never even cited—by imposing liability for exclusive dealing without an adequate showing of likely competitive harm. If allowed to stand, the judgment below could condemn or chill a wide range of beneficial exclusive dealing arrangements. We therefore urge reversal to avoid creating new and unwelcome antitrust enforcement risks.”
ICLE White Paper The Durbin Amendment to the Dodd-Frank financial reform legislation capped debit card interchange fees for banks with assets of $10 billion. Credit card and prepaid card interchange fees were not regulated.
In 2009, the U.S. Congress passed the “Durbin Amendment” to the Dodd-Frank financial reforms. In October 2011, the Durbin Amendment was implemented by a Federal Reserve rulemaking that effectively halved the debit card “interchange fee” that may be charged by banks with over $10 billion in assets. This paper assesses the emerging data on Durbin’s effects and provides an in-depth review of the actual U.S. experience with the Durbin Amendment.
The paper begins with a brief discussion of the role and benefits of payment cards. It then proceeds to a description of the Durbin Amendment’s interchange fee caps, followed by an assessment of the effect of the caps on bank customers, comparing the differential effect on customers of banks subject to the caps versus those that are not subject to them. This leads to a discussion of the wider effect of the caps, with particular focus on the effect on poorer households, on the quality of banking services, and on the usage of different types of payment cards.
Scholarship Armen Alchian was one of the great economists of the twentieth century, and his 1950 paper, Uncertainty, Evolution, and Economic Theory, one of the most important contributions to the economic literature.
Armen Alchian was one of the great economists of the twentieth century, and his 1950 paper, Uncertainty, Evolution, and Economic Theory, one of the most important contributions to the economic literature. Anticipating modern behavioral economics, Alchian explains that firms most decidedly do not – cannot – actually operate as rational profit maximizers. Nevertheless, economists can make useful predictions even in a world of uncertainty and incomplete information because market environments “adopt” those firms that best fit their environments, permitting them to be modeled as if they behave rationally. This insight has important and under-appreciated implications for the debate today over the usefulness of behavioral economics.
Alchian’s explanation of the role of market forces in shaping outcomes poses a serious challenge to behavioralists’ claims. While Alchian’s (and our) conclusions are born out of the same realization that uncertainty pervades economic decision making that preoccupies the behavioralists, his work suggests a very different conclusion: The evolutionary pressures identified by Alchian may have led to seemingly inefficient firms and other institutions that, in actuality, constrain the effects of bias by market participants. In other words, the very “defects” of profitable firms – from conservatism to excessive bureaucracy to agency costs – may actually support their relative efficiency and effectiveness, even if they appear problematic, costly or inefficient. In fact, their very persistence argues strongly for that conclusion.
In Part I, we offer a short summary of Uncertainty, Evolution, and Economic Theory. In Part II, we explain the implications of Alchian’s paper for behavioral economics. Part III looks at some findings from experimental economics, and the banking industry in particular, to demonstrate how biases are constrained by firms and other institutions – in ways often misunderstood by behavioral economists. In Part IV, we consider what Alchian’s model means for government regulation (with special emphasis on antitrust and consumer protection regulation).
Amicus Brief "The power to determine whether the practices of almost any American business are “unfair” makes the Federal Trade Commission (FTC) uniquely powerful..."
“The power to determine whether the practices of almost any American business are “unfair” makes the Federal Trade Commission (FTC) uniquely powerful. This power allows the FTC to protect consumers from truly harmful business practices not covered by the FTC’s general deception authority. But without effective enforcement of clear limiting principles, this power may be stretched beyond what Congress intended.
In 1964, the Commission began using its unfairness power to ban business practices that it determined offended “public policy.” Emboldened by vague Supreme Court dicta comparing the agency to a “court of equity,” FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244 (1972), the Commission set upon a series of rulemakings and enforcement actions so sweeping that the Washington Post dubbed the agency the “National Nanny.” The FTC’s actions eventually prompted Congress to briefly shut down the agency to reinforce the point that it had not intended the agency to operate with such expansive authority.
But in the last nine years, the unfairness power has risen again as the Commission has increasingly grappled with consumer protection questions raised by the accelerating pace of technological change brought by the Digital Revolution. Today, unfairness is back—but without the limiting principles that Congress agreed were essential to properly restraining the FTC’s power…”
“Denying the motion to dismiss will vindicate the FTC’s enforcement of Section 5 through poorly plead complaints that fail to satisfy the statutory requirements for the FTC’s use of is unfairness authority. The questions raised below are not questions about the adequacy of Wyndham’s data security practices in particular, or even whether they could conceivably be declared unfair upon a full analysis of the facts and proper development of limiting principles. Instead, this brief speaks to the fundamental problems of vagueness and due process raised by the FTC’s routine enforcement actions prior to adjudication by any court.,,”
Amicus Brief On November 23, 1998, the Attorneys General of 46 states signed an agreement settling allegations that the largest four tobacco manufacturers defrauded the states of Medicaid expenses.
On November 23, 1998, the Attorneys General of 46 states signed an agreement settling allegations that the largest four tobacco manufacturers defrauded the states of Medicaid expenses. The Master Settlement Agreement obligates the Majors and other manufacturers who opt in to the MSA to make annual payments totaling $206 billion. Under the MSA‘s terms, PMs‘ payments are calculated on the basis of their current national market shares. The annual payments are then allocated to the settling states. The MSA also prohibits PMs from various tobacco-related lobbying and advertising activity. MSA §§ III(b)-(i); III(m)-(p). The MSA raises the costs of cigarettes by approximately 35 cents per pack.
Structuring damage payments in this way would have created a significant competitive advantage for NPMs, which would have been able to undercut PMs‘ resulting inflated prices. The MSA contemplates this consequence by including several provisions that provide incentives for NPMs to join the settlement, thereby mitigating the competitive consequences of the PMs‘ annual payments to the states. These NPMs are often smaller companies which would stand to gain substantial market share by not joining the MSA. The MSA‘s incentives are accordingly generous.
First, new participants in the settlement which subject themselves to the tax increase within 90 days make zero MSA payments at all on sales at or below a benchmark level, defined as the higher of their 1998 sales or 125 percent of their 1997 sales. MSA § IX(i). To put the magnitude of this subsidy in perspective, a small manufacturer with sales of $100,000 per month would be entitled to a $1.5 million annual tax subsidy. See Jeremy Bulow, Director, Bureau of Econ., Fed. Trade Comm‘n, The State Tobacco Set- tlements and Antitrust (June 25, 2007).
Presentations & Interviews WATCH: Video
Credit cards and other electronic payment vehicles are a large and increasingly important part of how we do business. Credit cards allow consumers all over the world to have instantaneous access to credit to transact in both traditional in-person retail settings and over the Internet with businesses they will never see. In the U.S., we have become accustomed to paying for an increasing share of our purchases through electronic means.
But behind their convenience and speed lies an often misunderstood economics of consumer credit, two-sided markets, and network systems. Congressional action to regulate these markets must take into consideration the unique nature of this changing form of currency.
Professor Todd Zywicki and Professor Geoffrey Manne provide an overview of the trends and data related to credit card usage, as well as explain the mechanisms which allow them to exist.
https://www.youtube.com/watch?v=vtEuChaMDZs
Popular Media The Obama administration has promised that the Federal Reserve’s new Consumer Financial Protection Bureau will be independent from politics, a model of regulatory expertise grounded . . .
The Obama administration has promised that the Federal Reserve’s new Consumer Financial Protection Bureau will be independent from politics, a model of regulatory expertise grounded in sound data and economics. Naming Harvard Law Prof. Elizabeth Warren as de facto agency head undermines both goals.
Read the full piece here.
Popular Media Late in the Senate’s proceedings on the financial regulatory reform bill, the Senate adopted – with no hearings and minimal debate – a controversial provision . . .
Late in the Senate’s proceedings on the financial regulatory reform bill, the Senate adopted – with no hearings and minimal debate – a controversial provision proposed by Sen. Richard Durbin, Illinois Democrat, that imposes price controls on interchange fees for debit and prepaid cards. The amendment also allows merchants to override several rules of payment card networks that currently protect consumers from abusive practices by merchants. While big-box merchants and convenience stores are declaring this a victory against the financial services industry, if the amendment survives in conference committee, consumers and small banks will be the real losers.
