Late last year, with support from the International Center for Law and Economics, I published a paper that empirically analyzed the Philadelphia civil court system. That study focused upon the Philadelphia Complex Litigation Center (PCLC) which handles large mass tort programs including asbestos cases, hormone therapy replacement cases, various prescription drug-related injuries, and other mass tort programs. The PCLC has recently come under criticism for the use of a number of controversial procedures including the consolidation of asbestos cases and the use of reverse-bifurcation methods, where a plaintiff’s damages are calculated prior to the establishment of liability. That paper considered publicly available data from the Administrative Office of Pennsylvania Courts to analyze trends in docketed and pending civil cases in Philadelphia compared to other non-Philadelphia Pennsylvania counties, cases in federal court, and a national sample of state courts.

Read the full piece here. 

President Obama has, as rumored, appointed Bill Baer (Arnold & Porter) to head the Antitrust Division.  Reuters reports:

Baer, who is the chair of Arnold and Porter’s Antitrust Practice Group, also previously headed the Federal Trade Commission’s competition division when it stopped a merger between Staples and Office Depot in 1997.

He will replace Sharis Pozen, the acting assistant attorney general for antitrust, who plans to step down at the end of April. Pozen succeeded Christine Varney, who left last August.

Baer’s nomination, which was widely expected, still must be confirmed by the U.S. Senate.

…
Baer is seen as someone who would continue the present policies of the Justice Department’s antitrust office.

The division’s key outstanding cases include the purchase of Nortel’s patent assets by a consortium led by Apple, and Google’s purchase of Motorola Mobility. It also has a number of criminal price-fixing probes.

Mr. Baer is a very well respected figure in the antitrust community and I expect this to be perceived — as it should be — as a very high quality appointment.

Filed under: antitrust

I think reference bloat is a problem, particularly in management journals (not so much in economics journals). Too many papers include tedious lists of references supporting even trivial or obvious points. It’s a bit like blog entries that ritually link every technical term or proper noun to its corresponding wikipedia entry. “Firms seek to position themselves and acquire resources to achieve competitive advantage (Porter, 1980; Wernerfelt, 1984; Barney, 1986).” Unless the reference is non-obvious, narrowly linked to a specific argument, etc., why include it? Readers can do their Google Scholar searches if needed.

Read the full piece here.

Last month, the Federal Reserve released a study, titled “The U.S. Housing Market: Current Conditions and Policy Considerations,” which offers prescriptions on how to cure the housing mess. Given the importance of this issue to the nation’s economic wellbeing—a large portion of our assets are tied up in real estate, and the associated housing-wealth effects are large—I am surprised how little attention the housing market is getting in the Republican debates. Debate sponsors, presumably driven by ratings, seem more interested in Newt’s love life and Mitt’s finances than in economic policy.

Read the full piece here.

Last week Thom posted about the government’s attempt to hide the cost of taxes and regulatory fees in commercial airfares. Apparently Spirit Airlines is highlighting another government-imposed cost of doing business by advertising a new $2/ticket fee that the airline has imposed. According a CNN report yesterday:

Spirit Airlines says a new federal regulation aimed at protecting consumers is forcing it to charge passengers an additional $2 for a ticket.

The fee, which Spirit calls the “Department of Transportation Unintended Consequences Fee,” has been added to each ticket effective immediately, according to Misty Pinson, a Spirit spokeswoman.

The new DOT regulation allows passengers to change flights within 24 hours of booking without paying a penalty. The airline says the regulation forces them to hold the seat for someone who may or may not want to fly. As a consequence, someone who really does want to fly wouldn’t be able to buy that seat because the airline is holding it for someone who might or might not end up taking it.

In short, DOT is requiring airlines to give consumers a real option to change their flight plans at zero cost within a 24 hour window. Spirit rightly recognizes that options have value. Not only is there a value to consumers in ‘buying’ such an option, there is a cost associated with providing the option; in this case, the opportunity cost of selling seats that may be held for someone that will exercise the option to cancel without a fee.

Obviously, DOT head Ray LaHood is unimpressed.

“This is just another example of the disrespect with which too many airlines treat their passengers,” Department of Transportation Secretary Ray LaHood said in an e-mailed statement. “Rather than coming up with new and unnecessary fees to charge their customers, airlines should focus on providing fair and transparent service — that’s what our common sense rules are designed to ensure.”

Perhaps Mr. LaHood doesn’t understand the concept of options and option value. The right, but not the obligation, to undertake an activity (particularly under pre-specified terms) is clearly an economic good.  The very notion that DOT’s new regulation is touted as “consumer friendly” recognizes that it creates additional value for consumers. That is, it’s giving something away that is of value…a property right to change one’s mind at zero cost. However, it is disingenuous of Mr. LaHood to object to the idea that giving away value imposes a cost on the one providing the value (and I don’t mean the DOT, but the airlines who must honor the consumer’s exercise of the option).

A better solution might be to require airlines to explicitly offer the option of a no-penalty change within a 24-hour window. Then consumers could choose whether to pay the fee and airlines might discover the true market value of that option. Spirits’ $2 may be too high. More likely, it’s too low. Many airlines already do offer the option of a no-fee cancellation and the fare differential is much higher than $2, but that option typically has a much longer maturity…any time after booking up until departure. A shorter maturity window should command a lower option value.

Spirit Airlines may be the epitome of nickle-and-diming air travel consumers, something many consumers (myself included in some cases) don’t appreciate. However, there is no denying that Spirit understands the nature of options and their value. And there’s also no denying that, based on its stock price over the past year, Spirit is doing at least as well as industry leaders in providing consumers value for the options they choose. Perhaps instead of casting aspersions, Mr LaHood and his staff should invite Spirit to teach them about this fairly fundamental concept of options and option value rather than imposing regulations with so little regard for their true costs.

Filed under: business, consumer protection, regulation, Sykuta Tagged: airlines, options, regulation

Charles (“Rick”) Rule, who represents Microsoft and is the head of the antitrust practice at Cadwalader, Wickersham & Taft LLP, and I had an opportunity to debate the various antitrust issues involving Google and its search engine on last week.  I didn’t have much of a chance to report here on the blog over the past week, but the Columbia Law School has done the work for me.  Here’s a recent report:

Joshua Wright, professor of law at George Mason University School of Law, took the position that there is no significant evidence that Google is guilty of antitrust violations. Even if Google, like other search engines, favors its own content when producing the results of a search request, he argued, dissatisfied customers can easily switch search engines. In other words, the competition is just a click away.

On the other side of the debate was Charles F. Rule, head of the antitrust practice at Cadwalader, Wickersham & Taft LLP. Rule, who has defended Microsoft in antitrust litigation, argued that ample anecdotal evidence exists that implicates Google in a mix of practices that have had the cumulative effect of excluding competitors’ content from appearing in a Google search, as well as monopolizing advertisers. He stressed that his opinions were his own.

…

Wright discussed the evolution of search engines in the last ten years. He conceded that the allegation of search bias, in which a search engine favors its own content at the expense of rivals, is a possible violation of Section 2 of the Sherman Antitrust Act. But Wright noted that leading case law indicates that the behavior in question must harm the competitive process and thereby harm consumers, to be dubbed “exclusionary.”

“We demand evidence of real harm to competition before we break out the antitrust hammer,” he said, “and I don’t think there’s significant evidence of that here. It’s not hard to switch to get what you are looking for.”

Rule dismissed the “just-a-click-away” argument at the beginning of his talk.

“It’s not quite that simple,” he said. “The fact is that because of some of Google’s practices, the company has made it difficult for other search engines like Bing to achieve the same level of performance.”

Rule explained that search engines make their money by selling eyeballs to advertisers, and cited statistics that establish Google’s long-time share of the search-engine advertising market at 90 percent and up. He offered detailed descriptions of specific Google practices that have had the alleged effect of excluding competitive search engines—not just by blocking their content, but also by denying them opportunities to reach advertisers.

“With respect to bias, you can see specific anecdotes where it appears that Google has allegedly blacklisted certain companies intentionally and, in a very focused way, degraded their results so they appear lower on the page,” he said. “But also on the advertising side, there are anecdotes that when Google perceived a potential competitive threat, it automatically dramatically increases the price competitors have to pay, sometimes five to ten thousand percent overnight.”

Filed under: antitrust, economics, federal trade commission, google, monopolization, technology

Keith Woolcock (Time Business) offers an interesting perspective on what economists would describe as “competition for the field” between Apple, Facebook, Google, and Facebook.  It gives a good sense of the many dimensions of competition upon which these firms compete.

The upcoming IPO of Facebook, the flak surrounding Twitter’s decision to censor some tweets, and Google’s weaker-than-expected 4th-quarter earnings all point to one of the big events of our times: The crazy, chaotic, idealistic days of the Internet are ending. Once, the Prairies were open and shared by everyone. Then the farmers arrived and fenced them in. The same is happening to the Internet: Apple, Amazon and Facebook are putting up fences — and Google is increasingly being left outside.

The old Internet on which Google has thrived is still there, of course, but like the wilderness it is shrinking. Often these days, we sign up for Facebook or Amazon’s private version of the Internet. At other times, we use a smartphone and download an App instead of using Google search.

…

The danger to Google, in other words, is that as social networking, smartphones and tablets increasingly come to dominate the Internet, Google’s chance to earn advertising revenues from searching will shrink along with its influence.

Yes, Google has the Android and Google+, but these may not be enough to fight the shift to the closed Internet. Google+, of course, has just a tiny fraction of Facebook’s scale and there’s currently little reason to think it can catch up. The Android operating system, also an attempt by Google to build its own internet eco-system, is a more conspicuous success. Most commentators focus on the rapid growth of Android and the fact that it has greater market share than the iPhone.

But this analysis misses the point: The Android may have market share, but more than half of mobile searches come from iPhone users. Google may have developed Android but, unlike Apple’s iPhone, it does not really control it. Licensees like Samsung and HTC are able to adapt Android software to their own ends. And smart companies like Amazon are getting a free ride on Android while sharing little of the spoils with Google.

Don’t get me wrong: Google is still a force, just as Microsoft, Intel and IBM are. But they are no longer at the epicentre of the zeitgeist. Like Microsoft before it, Google can fight the good fight on many different fronts. Whether it can ever find an engine of growth capable of supplanting its core business is another question.

Check out the whole thing.

Filed under: antitrust, business, economics, google, monopolization, technology

Sports Illustrated:

The Federal Trade Commission has concluded and closed a six-month, nonpublic investigation of Zuffa LLC., the owners of the Ultimate Fighting Championship, and will not take further action at this time, an FTC spokesperson confirmed to SI.com on Tuesday.

According to closing letters to parties involved that were made public Tuesday, the FTC Bureau of Competition investigation focused on Zuffa’s March 2011 acquisition of Explosion Entertainment LLC., which owned the rival Strikeforce promotion, and whether the purchase violated Section 7 of the Clayton Antitrust Act or Section 5 of the Federal Trade Commission Act.

Section 7 of the Clayton Act  “prohibits mergers and acquisitions when the effect may be substantially to lessen competition, or tend to a create a monopoly,” according to FTC guidelines.

Section 5 of the Federal Trade Commission Act prohibits “unfair or deceptive acts or practices in or affecting commerce.’’

“No action has been taken in regards to this part of the investigation,” said the FTC spokesperson, though he said the governmental agency reserves the right to revisit the matter in the public’s interest.

Zuffa purchased Explosion Entertainment, established by Scott Coker and Silicon Valley Sports and Entertainment, a sports franchise company, for a reported $40 million. Coker became the general manager for Strikeforce, which plans to hold six events on Showtime this year.

A remarkable set back for the unilateral effects enforcement agenda at the agencies to be sure.

Filed under: antitrust, federal trade commission, merger guidelines, mergers & acquisitions

Economists recognize that the source of sustainable, private-sector jobs is investment. Due to measurement problems with investment data, however, it is sometimes easier to link a byproduct of investment—namely, adoption of the technology made possible by the investment—to job creation. This is precisely what economists Rob Shapiro and Kevin Hassett have done in their new study on the employment effects of wireless investments.

Read the full piece here.