The Federal Trade Commission conference announcement is below; note that public comments on the date of the conference.  This is an important space and should attract some excellent speakers.  The topics suggest a greater focus on consumer protection than competition issues.  Here is the announcement:

The Federal Trade Commission will host a workshop on April 26, 2012, to examine the use of mobile payments in the marketplace and how this emerging technology impacts consumers. This event will bring together consumer advocates, industry representatives, government regulators, technologists, and academics to examine a wide range of issues, including the technology and business models used in mobile payments, the consumer protection issues raised, and the experiences of other nations where mobile payments are more common. The workshop will be free and open to the public.

Topics may include:

• What different technologies are used to make mobile payments and how are the technologies funded (e.g., credit card, debit card, phone bill, prepaid card, gift card, etc.)?
• Which technologies are being used currently in the United States, and which are likely to be used in the future?
• What are the risks of financial losses related to mobile payments as compared to other forms of payment? What recourse do consumers have if they receive fraudulent, unauthorized, and inaccurate charges? Do consumers understand these risks? Do consumers receive disclosures about these risks and any legal protections they might have?
• When a consumer uses a mobile payment service, what information is collected, by whom, and for what purpose? Are these data collection practices disclosed to consumers? Is the data protected?
• How have mobile payment technologies been implemented in other countries, and with what success? What, if any, consumer protection issues have they faced, and how have they dealt with them?
• What steps should government and industry members take to protect consumers who use mobile payment services?

To aid in preparation for the workshop, FTC staff welcomes comments from the public, including original research, surveys and academic papers. Electronic comments can be made at https://ftcpublic.commentworks.com/ftc/mobilepayments. Paper comments should be mailed or delivered to: 600 Pennsylvania Avenue N.W., Room H-113 (Annex B), Washington, DC 20580.

The workshop is free and open to the public; it will be held at the FTC’s Satellite Building Conference Center, 601 New Jersey Avenue, N.W., Washington, D.C.

Filed under: antitrust, economics, financial regulation, technology, wireless

A new rule kicks in today requiring airlines to include all taxes and mandatory fees in their advertised fares.  The rule, part of a broader “passengers’ bill of rights”-type regulation promulgated by the Department of Transportation, is being sold as a proconsumer mandate:  It purportedly protects consumers from the sticker shock that results when they learn that the true consumer price for a flight, due to taxes and mandatory fees, is much higher than the advertised price.

But how consumer-friendly is this rule?  Won’t it be easier to raise taxes and fees when they aren’t presented as a line item, when consumers aren’t “startled” to see the exorbitant amount they’re paying for government services?  Value-added taxes (VATs), which tax the incremental value added at each stage of production and are generally included in the posted price for an item, have proven easier to raise than sales taxes, which are added at the register.  That’s because the latter are more visible so that increases are more likely to generate political opposition.  While VATs are common throughout Europe, they’re virtually non-existent in the United States, in part because we Americans have recognized the important role “tax sticker shock” plays in creating political accountability.

Consumer advocates, nevertheless, are lauding the new Department of Transportation rule.  They don’t seem to realize that higher taxes are bad for consumers and that taxes are more likely to rise when the government can hide them.  They also seem to care little about consumer sovereignty.  Don’t consumers have a right to know how much they’re paying to have scads of Homeland Security officers bark orders at them and gawk at their privates?

 

Filed under: advertising, consumer protection, regulation, taxes

The EU is apparently thinking of adopting common and highly restrictive privacy standards which would make use of information by firms much more difficult and would require, for example, that data be retained only as long as necessary.  This is touted as pro-consumer legislation.  However, the effects would be profoundly anti-consumer.  For one thing, ads would be much less targeted, and so consumers would get less valuable ads and would not learn as much about valuable prodcts and services aimed at their interests.  For another effect, fraud and identity theft would become more common as sellers could not use stored information to verify identity.  Finally, costs of doing buisness would increase, and so we would expect to see fewer innovations aimed at the European market, and some sellers might avoid that market entirely.

Filed under: privacy

Haas-Sloan Conference on 

The Law & Economics of Organization: New Challenges and Directions

Nov. 30-Dec. 1, 2012

The Walter A. Haas School of Business, with support from the Alfred P. Sloan Foundation, is issuing a call for original research papers to be presented at the Conference on The Law & Economics of Organization: New Challenges and Directions. The conference will be held at the Haas School of Business in Berkeley, CA, on Friday, November 30, and Saturday, December 1, 2012. A reception and dinner will follow a keynote address by Nobel Laureate Oliver Williamson on Friday.

The purpose of the conference is to take stock of recent advances in the analysis of economic organization and institutions inspired by the work of 2009 Nobel Laureate Oliver Williamson and to examine its implications for contemporary problems of organization and regulation. Empirical research and research informed by detailed industry and institutional knowledge is especially welcome.

Relevant topics include but are not limited to

• the nature, role, and implications of bounded rationality and opportunism as they relate to issues of contracting and the institutional framework governing contractual relationships
• government intervention in the market through regulation, antitrust policies, and direct investment (e.g., energy market and health care regulation; patent enforcement; concession contracts in alternative legal environments; government tax preferences for and subsidization of technologies and markets)
• the operation and regulation of financial markets and institutions (e.g., the origins of and responses to the financial crisis; the role of credit rating agencies; financial and futures market organization and regulation)
• legal and economic determinants of corporate organization, from joint ventures to the organization of corporate boards (e.g, labor restrictions and corporate organization; organization of high technology companies; regulation of corporate boards)

Paper proposals or, if available, completed papers should be submitted on line at http://www.bus.umich.edu/Conferences/Haas-Sloan-LEO-Conference by March 31, 2012. The deadline for completed papers is November 1, 2012. Selections will be made by the conference organizers, Professors Pablo Spiller (Berkeley), Scott Masten (Michigan), and Alan Schwartz (Yale). Conference papers will be published in a special issue of the Journal of Law, Economics, & Organization.

Filed under: antitrust, behavioral economics, economics

Stan Liebowitz (UT-Dallas) offers a characteristically thoughtful and provocative op-ed in the WSJ today commenting on SOPA and the Protect IP Act.  Here’s an excerpt:

You may have noticed last Wednesday’s blackout of Wikipedia or Google’s strange blindfolded-logo screen. These were attempts to kill the Protect IP Act and the Stop Online Piracy Act, proposed legislation intended to hinder piracy and counterfeiting. The laws now before Congress may not be perfect, and they can still be amended. But to do nothing and stay with the status quo is to keep our creative industries at risk by failing to enforce their property rights.

Critics of these proposed laws claim that they are unnecessary and will lead to frivolous claims, reduce innovation and stifle free speech. Those are gross exaggerations. The same critics have been making these claims about every previous attempt to rein in piracy, including the Digital Millennium Copyright Act that was called a draconian antipiracy measure at the time of its passage in 1998. As we all know, the DMCA did not kill the Internet, or even do any noticeable damage to freedom—or to pirates.

…

Scads of Internet pundits and bloggers have vehemently argued that piracy is really a sales-promoting activity—because it gives people a free sample that might lead to a purchase—or that any piracy problems have been due to a failure of industry to embrace the Internet. Yet these claims are little more than wishful thinking. Some reflect a hostility to commercial activities—think Occupy Wall Street, or self-interest. Others make “freedom” claims on behalf of sites that profit by helping individuals find pirate sites, makers of complementary hardware, or companies that benefit from Internet usage and collect revenues whether the material being accessed was legally obtained or not.

In my examination of peer-reviewed studies, the great majority have results that conform to common sense: Piracy harms copyright owners. I was also somewhat surprised to discover that the typical finding of such academic studies was that the entire enormous decline that has occurred is due to piracy.

Contrary to an often-repeated myth, providing consumers with convenient downloads at reasonable prices, as iTunes did, does not appear to have ameliorated piracy at all. The sales decline after iTunes exploded on the scene was about the same as the decline before iTunes existed. Apparently it really is difficult to compete with free. Is that really such a surprise?

Do check out the whole thing.

 

 

Filed under: business, copyright, economics, intellectual property, music, technology

The fight over SOPA is about the ownership of intellectual property.  Rights to intellectual property have two effects.  The benefits of intellectual property are the incentives for creation.  The costs are that after some work is created any price above marginal cost (which is often zero for digital property) will discourage valuable use.

Every piece of intellectual property than now exists was created with the incentives that were in place when it was created.  No change in intellectual property rights can have any effect on existing works.  Therefore, any change in property rights should be entirely prospective.  That is, any change in property rights should effect only works copyrighted after the passage of the legislation.

Of course, there are huge rents associated with the ownership of existing rights, and fights over these rents will  continue.  But we should recognize that these fights are over rents — payments which have no incentive effects.  If our goal is efficiency, we should stop wasting resources on these fights and start from now.

Filed under: copyright, intellectual property, truth on the market

A Congressional Bill proposing a “Reasonable Profits Board” so that profits on the sale of oil and gas in excess of what is “reasonable” can be subjected to a windfall tax.  A brief description:

According to the bill, a windfall tax of 50 percent would be applied when the sale of oil or gas leads to a profit of between 100 percent and 102 percent of a reasonable profit. The windfall tax would jump to 75 percent when the profit is between 102 and 105 percent of a reasonable profit, and above that, the windfall tax would be 100 percent. The bill also specifies that the oil-and-gas companies, as the seller, would have to pay this tax.

We have a long archives of posts here at TOTM on a variety of forms of price gouging legislation in oil and gas.   Most recently, in discussing a White House Task Force aimed to detect price gouging and usurping jurisdiction from the Federal Trade Commission, I wrote:

One need only read the FTC’s 222 page report on gasoline prices post-Katrina and Rita to appreciate the Commission’s expertise in this area.  But perhaps most importantly, and undoubtedly related to the appointment of a working group outside the Commission, is that the Commission understands the relevant economics.  Indeed, as I noted just recently, then Bureau of Economics Director Michael Salinger gets it right when he observed  “as unpleasant as high-priced gasoline is, running out will be even worse.”  Further, it was the Commission Report that found not only scant evidence of what might be described as “gouging” — but did find examples of gas stations that shut down rather than risk a suit under a state price gouging law.  “Price Gouging Helps Consumers” doesn’t make for much of an election slogan, so perhaps this is all to be expected.  But nobody should be fooled into believing that enforcement of existing state price gouging laws, or a new federal task force devoted investigate “price gouging,” are going to make consumers better off.

The criticisms against price gouging laws become even stronger against a “Reasonable Profits Board,” which is even more blatantly political, even more likely to harm consumers, and even more likely to waste social resources than enforcement of state price gouging laws.

 

Filed under: economics, federal trade commission

Regular readers will know that several of us TOTM bloggers are fans of the “decision-theoretic” approach to antitrust law.  Such an approach, which Josh and Geoff often call an “error cost” approach, recognizes that antitrust liability rules may misfire in two directions:  they may wrongly acquit harmful practices, and they may wrongly convict beneficial (or benign) behavior.  Accordingly, liability rules should be structured to minimize total error costs (welfare losses from condemning good stuff and acquitting bad stuff), while keeping in check the costs of administering the rules (e.g., the costs courts and business planners incur in applying the rules).  The goal, in other words, should be to minimize the sum of decision and error costs.  As I have elsewhere demonstrated, the Roberts Court’s antitrust jurisprudence seems to embrace this sort of approach.

One of my long-term projects (once I jettison some administrative responsibilities, like co-chairing my school’s dean search committee!) will be to apply the decision-theoretic approach to regulation generally.  I hope to build upon some classic regulatory scholarship, like Alfred Kahn’s Economics of Regulation (1970) and Justice Breyer’s Regulation and Its Reform (1984), to craft a systematic regulatory model that both avoids “regulatory mismatch” (applying the wrong regulatory fix to a particular type of market failure) and incorporates the decision-theoretic perspective. 

In the meantime, I’ve been thinking about insider trading regulation.  Our friend Professor Bainbridge recently invited me to contribute to a volume he’s editing on insider trading.  I’m planning to conduct a decision-theoretic analysis of actual and proposed insider trading regulation.

Such regulation is a terrific candidate for decision-theoretic analysis because stock trading on the basis of material, nonpublic information itself is a “mixed bag” practice:  Some instances of insider trading are, on net, socially beneficial; others create net welfare losses.  Contrast, for example, two famous insider trading cases:

• In SEC v. Texas Gulf Sulphur, mining company insiders who knew of an unannounced ore discovery purchased stock in their company, knowing that the stock price would rise when the discovery was announced.  Their trading activity caused the stock price to rise over time.  Such price movement might have tipped off landowners in the vicinity of the deposit and caused them not to sell their property to the company (or to do so only at a high price), in which case the traders’ activity would have thwarted a valuable corporate opportunity.  If corporations cannot exploit their discoveries of hidden value (because of insider trading), they’ll be less likely to seek out hidden value in the first place, and social welfare will be reduced.  TGS thus represents “bad” insider trading.  
• Dirks v. SEC, by contrast, illustrates “good” insider trading.  In that case, an insider tipped a securities analyst that a company was grossly overvalued because of rampant fraud.  The analyst recommended that his clients sell (or buy puts on) the stock of the fraud-ridden corporation.  That trading helped expose the fraud, creating social value in the form of more accurate stock prices.

These are just two examples of how insider trading may reduce or enhance social welfare.  In general, instances of insider trading may reduce social welfare by preventing firms from exploiting and thus creating valuable information (as in TGS), by creating incentives for deliberate mismanagement (because insiders can benefit from “bad news” and might therefore be encouraged to “create” it), and perhaps by limiting stock market liquidity or reducing market efficiency by increasing bid-ask spreads.  On the other hand, instances of insider trading may enhance social welfare by making stock markets more efficient (so that prices better reflect firms’ expected profitability and capital is more appropriately channeled), by reducing firms’ compensation costs (as the right to engage in insider trading replaces managers’ cash compensation—on this point, see the excellent work by our former blog colleague, Todd Henderson), and by reducing the corporate mismanagement and subsequent wealth destruction that comes from stock mispricing (mainly overvaluation of equity—see work by Michael Jensen and yours truly).

Because insider trading is sometimes good and sometimes bad, rules restricting it may err in two directions:  they may acquit/encourage bad instances, or they may condemn/prevent good instances.  In either case, social welfare suffers.  Accordingly, the optimal regulatory regime would seek to minimize the sum of losses from improper condemnations and improper acquittals (total error costs), while keeping administrative costs in check.

My contribution to Prof. Bainbridge’s insider trading book will employ decision theory to evaluate three actual or proposed approaches to regulating insider trading:  (1) the “level playing field” paradigm, apparently favored by many prosecutors and securities regulators, which would condemn any stock trading on the basis of material, nonpublic information; (2) the legal status quo, which deems “fraudulent” any insider trading where the trader owes either a fiduciary duty to his trading partner or a duty of trust or confidence to the source of his nonpublic information; and (3) a laissez-faire, “contractarian” approach, which would permit corporations and sources of nonpublic information to posit their own rules about when insiders and informed outsiders may trade on the basis of material, nonpublic information.  I’ll then propose a fourth disclosure-based alternative aimed at maximizing social welfare by enhancing the social benefits and reducing the social costs of insider trading, while keeping decision costs in check. 

Stay tuned…I’ll be trying out a few of the paper’s ideas on TOTM.  I look forward to hearing our informed readers’ thoughts.

Filed under: 10b-5, error costs, insider trading, law and economics, markets, regulation, securities regulation

Regulated firms and their Washington lawyers study agency reports and public statements carefully to figure out the rules of the road; the clearer the rules, the easier it is for regulated firms to understand how the rules affect their businesses and to plan accordingly. So long as the regulator and the regulated firm are on the same page, resources will be put to the most valuable use allowed under the regulations.

Read the full piece here.