Speaking of Josh’s co-author, David Evans,  David just testified the other day before the House Financial Services Committee on a bill, the Welch Bill, HR 2382, that would regulate the fees banks charge to each other to process credit card payments.  The Welch Bill is actually only one of three pending bills that would regulate interchange fees (the other two offer antitrust exemptions for merchants to negotiate these fees. Because we all know how good antitrust exemptions are).

Read the full piece here.

Between the various power grabs and dubious regulatory proposals (each more dubious than the last!) from the likes of Geithner, Bernanke, Frank (.pdf), Dodd, etc., etc. you’d be excused for thinking the financial news from Washington (remember when financial news used to come from New York?) was all bad and growing only worse.

Read the full piece here.

This essay is the introduction to a forthcoming volume entitled, Regulating Innovation: Competition Policy and Patent Law Under Uncertainty (Cambridge U. Press 2009 forthcoming).

In addition to introducing all of the papers in the volume, this essay introduces the organizing themes of the volume. Innovation is critical to economic growth. While it is well understood that legal institutions play an important role in fostering an environment conducive to innovation and its commercialization, much less is known about the optimal design of specific institutions. Regulatory design decisions, and in particular competition policy and intellectual property regimes, can have profoundly positive or negative consequences for economic growth and welfare. However, the ratio of what is known to unknown with respect to the relationship between innovation, competition, and regulatory policy is staggeringly low. In addition to this uncertainty concerning the relationships between regulation, innovation, and economic growth, the process of innovation itself is not well understood.

The regulation of innovation and the optimal design of legal institutions in this environment of uncertainty are two of the most important policy challenges of the 21st century. Any legal regime must attempt to assess the tradeoffs associated with rules that will affect incentives to innovate, allocative efficiency, competition, and freedom of economic actors to commercialize the fruits of their innovative labors and foster economic growth. Unfortunately, as this essay describes, our tools for assessing these tradeoffs are limited.

Any coherent regulatory framework must take account of the low level of empirical knowledge surrounding the complex relationship between regulation – both through competition policy and patent law – and innovation, and the corresponding uncertainty caused by this absence of knowledge. The relationship between regulation and innovation has posed a significant challenge to antitrust economists at least since Schumpeter’s suggestion that dynamic competition would result in “creative destruction,” leading to a competitive process where one monopolist would replace another sequentially as new entrants developed a superior product.

Interfering in this dynamic process for the sake of static efficiency gains is perilous, but, of course, not impossible. But regulators and policy makers must take (more) seriously the condition of fundamental uncertainty in which they act, and the significant costs of their inevitable errors before justifying interventions on grounds of promoting competition or facilitating innovation.

This essay and the chapters in this book, approach this critical set of problems from an economic perspective, relying on the tools of microeconomics, quantitative analysis, and comparative institutional analysis to explore and begin to provide answers to the myriad challenges facing policymakers. The strength of this analysis – often described as the New Institutional Economic approach – is in its recognition that understanding economic performance requires not only economic modeling of narrow behavior, but also an understanding of that behavior in its legal, economic, social, and political institutional context.

Read the full paper here.

In light of the recent political focus on healthcare, several Congressional bills propose to single out a class of contracts between pharmaceutical companies for closer antitrust scrutiny.  Oftentimes, a pharmaceutical company will engineer a functionally identical substitute to a “brand name” drug with specific appeal to consumers.  This substitute – with the chemical properties of the known drug but a different name – is known as a “generic drug,” or simply a “generic.”  In an attempt to preserve the legal monopoly a patented brand-name enjoys, the branded drug’s producer will sometimes offer the generic’s producer a payment to delay entry into the market for a fixed amount of time.  Known as a “reverse payment settlement” – or colloquially as “pay for delay” – these agreements are at the intersection of contemporary fears and debates about healthcare and a debate as old as the law of competition itself.

Read the full piece here.

I have said it before and I’ll say it again: All of this hand wringing over executive compensation seems to exist in a parallel world where corporate executives have no risk aversion, where there is no real competition for managerial talent, and where firms can only take on too much–never too little–risk.  And this in a day and age (the age of never-ending financial reform regulation, Lehman/Bear, enormous public scrutiny of financial and banking industries, etc.) when the downside from excessive risk-taking is now either a) extremely large or b) non-existent (but only because of guaranteed government bail-outs).  In either case, fiddling with compensation schemes will not help matters.

Read the full piece here. 

In Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S. Ct. 2705 (2007) (“Leegin”), the Supreme Court completed the erosion of the per se rule against resale price maintenance (“RPM”) that began nearly 100 years prior.  It took only three months, however, for Congress to take steps toward reversing course by introducing the Discount Pricing Consumer Protection Act (“DPCPA”) in October 2007, which sought to legislatively overturn Leegin and mandate a rule of per se illegality in RPM cases.

Read the full piece here.

If you haven’t been living under a rock recently, you’ve seen an incredible amount of hand wringing–and proposed regulation–around “excessive compensation.”  I’m a little too lazy to amass all the relevant links here, but both the administration and the congress are introducing regulations/bills and talking about the issue extensively.

Read the full piece here.