Iwas terribly saddened and, quite frankly, dumbfounded when I heard that Larry Ribstein had passed away. I had seen Larry approximately three weeks before when he gave a workshop at Yale and the last thought that would have crossed my mind would have been that I would be receiving such horrible news. At the time, Larry mentioned in his no-nonsense way numerous projects that he had in the works and how much he was looking forward to spending the Spring semester in New York. It is exceedingly difficult to accept that all of this will not happen.

Read the full piece here.

Summary

In recent months a veritable legal and policy frenzy has erupted around Google generally, and more specifically concerning how its search activities should be regulated by government authorities throughout the world in the name of ensuring “search neutrality.”  Concerns with search engine bias have led to a menu of proposed regulatory reactions.  Although the debate has focused upon possible remedies to the “problem” presented by a range of Google’s business decisions, it has largely missed the predicate question of whether search engine bias is the product of market failure or otherwise generates significant economic or social harms meriting regulatory intervention in the first place.  “Search neutrality” by its very name presupposes that mandatory neutrality or some imposition of restrictions on search engine bias is desirable, but it is an open question whether advocates of search neutrality have demonstrated that there is a problem necessitating any of the various prescribed remedies. This paper attempts to answer that question, and we evaluate both the economic and non-economic costs and benefits of search bias, as well as the solutions proposed to remedy perceived costs. We demonstrate that search bias is the product of the competitive process and link the search bias debate to the economic and empirical literature on vertical integration and the generally-efficient and pro-competitive incentives for a vertically integrated firm to favor its own content. We conclude that neither an ex ante regulatory restriction on search engine bias nor the imposition of an antitrust duty to deal upon Google would benefit consumers. Moreover, in considering the proposed remedies, we find that by they substitute away from the traditional antitrust consumer welfare standard, and would impose costs exceeding any potential benefits.

Danny Sokol posted some nominations for best Antitrust Article from a variety of antitrust experts.  I was supposed to include my nomination for that list but missed the deadline.  Turns out my draft list doesn’t have much overlap with the articles nominated over there, so I figured I’d share my whole list here with all of the normal caveats (i.e., I’m sure I’ve forgotten some very important articles!).  Alas, I’ve been giving some thought to the best, most influential, most enjoyable, or most important antitrust articles and books (and in one case, press article) over the past year and came up with the following list of my favorites:

• Louis Kaplow, An Economic Approach to Price Fixing, 77 Antitrust Law Journal, 343 (2011)
• Daniel Crane, The Institutional Structure of Antitrust Enforcement (Oxford University Press 2011) (I reviewed Crane’s book here)
• Michael Baye & Joshua D. Wright, Is Antitrust to Complicated for Generalist Judges? The Impact of Economic Complexity and Judicial Training on Appeals, 50 J. L. & Econ. 1 (2011) (SSRN version available here; reviewed by John Woodbury in the Antitrust Source here)
• Geoffrey A. Manne & Joshua D. Wright, Competition Policy and Patent Law Under Uncertainty: Regulating Innovation (Cambridge University Press 2011)
• James Keyte & Kenneth B. Schwartz, Tally -Ho!: UPP and the 2010 Horizontal Merger Guidelines, 77(2) Antitrust Law Journal 587 (2011)
• Joseph Farrell, Fox or Dangerous Hedgehog?  A Reply to Keyte and Schwartz, 77(2) Antitrust Law Journal, 661 (2011)
• Keith N. Hylton, Brown Shoe Versus the Horizontal Merger Guidelines, 39 Review of Industrial Organization 95 (2011)
• Herbert Hovenkamp, Innovation and Competition Policy (2011)
• Avi Goldfarb & Catherine Tucker, Substitution Between Offline and Online Markets, Journal of Competition Law & Economics (2011)
• Thomas Catan, This Takeover Battle Pits Bureaucrat v. Bureaucrat, Wall Street Journal (April 12, 2011)

Happy New Year TOTM Readers.

Filed under: antitrust

Everyone who knew Larry Ribstein realized that he was very smart, very tough, and very hard working. Less well appreciated was his absolutely uncompromising commitment to the pursuit of the truth. Surprisingly, perhaps, this is a very rare quality among legal academics. It is the mark of a philosopher, by which I emphatically do not mean a professor of philosophy.

Read the full piece here.

Download: “International Signals: The Political Dimension of International Competition Law”

In the wake of the announcement that AT&T and T-Mobile are walking away from their proposed merger, there will be ample time to discuss whether the deal would have passed muster in federal court, and to review the various strategic maneuvers by the parties, the DOJ, and the FCC.  But now is a good time to take a look at what the market is predicting — and what that has to say about the various theories offered concerning the merger.  In prior blog posts, we’ve examined the stock market reaction to various events surrounding the merger — and in particular, the announcement that the DOJ would challenge it in federal court.

For a brief review, there are two primary theories that the merger would reduce competition and harm consumers.  Horizontal theories predict that the post-merger firm would gain market power, raise market prices and reduce output.  On these theories, Sprint and other rivals’ stock prices should increase in response to the merger; thus, if the DOJ announcement to challenge the merger reduces the probability of the post-merger acquisition of market power, Sprint stock should fall in response.  We know that it didn’t.  It surged.   That is consistent with a procompetitive merger because the challenge increases the probability that the rival will not face more intense competition post-merger.  Thus, Sprint’s surge in reaction to the DOJ announcement is consistent with the simple explanation that the merger was procompetitive and the market anticipated more intense competition post-merger.

Of course, as AAI and others have pointed out, Sprint’s stock price surge in response to the merger challenge was also consistent with “exclusionary” theories of the merger that posit that the post-merger firm would be able to foreclose Sprint from access to critical inputs (in particular, handsets) required to compete.  Richard Brunell (AAI) made this point in the comments to our earlier blog post, relying upon the fact that Verizon’s stock fell 1.2% (compared to market drop of .7%) to emphasize the applicability of the exclusion theory.   The importance of Verizon’s stock price reaction, the argument goes, is that while Sprint has to fear exclusion by a combined ATT/TMo, Verizon does not.  Thus, proponents of the exclusion theories assert, the combined surge in Sprint stock with Verizon’s relative non-movement is consistent with that anticompetitive theory.

Not so fast.  As I’ve pointed out, this conclusion relies upon an incomplete exposition of the economics of exclusion and one that should be difficult to square with your intuition.  If Verizon has nothing to fear from the post-merger firm excluding Sprint, it should greatly benefit from the merger!   Consider that if the exclusion theories are correct, Verizon gets the benefit of free-riding upon AT&T’s $39 billion investment in eliminating or weakening one of its rivals.   Surely, the $39 billion investment to exclude Sprint and other smaller rivals — as the exclusion proponents argue is the motive for merger here — provides considerable benefits to Verizon who doesn’t pay a dime.  Thus, rather than holding constant, Verizon’s stock price should fall significantly in response to the lost opportunity to appropriate these exclusionary gains for free.  Verizon’s stock non-reaction to the announcement that DOJ would challenge the merger was, in my view, inconsistent with the exclusion theories.   In sum, the market did not appear to anticipate the acquisition of market power as a result of the merger.

We now have a new event to use to evaluate the market’s reaction: AT&T and T-Mobile abandoning the merger.   It appears that, once again, Sprint’s stock price surged in reaction to the news (and now up about 8% in the last 24 hours).  Again, Verizon doesn’t move much at all.

Stock market reactions and event studies — and I’m not claiming I’ve done a full blown event study here,  just a simple comparison of stock price reactions to the market trends — produce valuable information.  They are obviously not dispositive.  The market can be wrong.  But so can regulators.  And as my colleague Bruce Kobayashi said in an interview (which I cannot find online) in Fortune Magazine evaluating the market reaction to the Staples-Office Depot merger in light of the FTC’s challenge: “It boils down to whether you trust the agencies or the stock market. I’ll take the stock market any day.”

Markets provide information.  The information provided here gives no reason to celebrate the withdraw on the behalf of consumers, or even the ever-present “public interest.”  Celebratory announcements to the contrary should be read with at least a healthy dose of skepticism in light of information above (and see also Hal’s excellent post) that the market did not anticipate the merger to facilitate the acquisition of market power via the combination of AT&T and T-Mobile or through the exclusion of Sprint.   Media reports that the merger was a “slam-dunk” in terms of the economics or that this is a tale of dispassionate economic analysis defeating the monopolist lobbying machine are misleading at best.   More importantly for the future, abandoning this merger does not repeal the spectrum capacity constraints facing the wireless industry, the ever-increasing demand for data, or the dearth of alternative options (despite the FCC’s claims that non-merger alternatives abound) for acquiring spectrum efficiently.

This will be a very interesting space to watch as the agencies deal with what will undoubtedly be other attempts to consolidate spectrum assets — especially in light of the FCC Report and the framework it lays down for evaluating future mergers.

Filed under: antitrust, doj, economics, federal communications commission, wireless

Back in September, the Senate Judiciary Committee’s Antitrust Subcommittee held a hearing on “The Power of Google: Serving Consumers or Threatening Competition?” Given the harsh questioning from the Subcommittee’s Chairman Herb Kohl (D-WI) and Ranking Member Mike Lee (R-UT), no one should have been surprised by the letter they sent yesterday to the Federal Trade Commission asking for a “thorough investigation” of the company. At least this time the danger is somewhat limited: by calling for the FTC to investigate Google, the senators are thus urging the agency to do . . . exactly what it’s already doing.

Read the full piece here.

Yesterday, AT&T announced it was halting its plan to acquire T-Mobile. Presumably AT&T did not think it could prevail in defending the merger in two places simultaneously—one before a federal district court judge (to defend against the DOJ’s case) and another before an administrative law judge (to defend against the FCC’s case). Staff at both agencies appeared intractable in their opposition. AT&T’s option of defending cases sequentially, first against the DOJ then against the FCC, was removed by the DOJ’s threat to withdraw its complaint unless AT&T re-submit its merger application to the FCC. The FCC rarely makes a major license-transfer decision without the green light from the DOJ on antitrust issues. Instead, the FCC typically piles on conditions to transfer value created by the merger to complaining parties after the DOJ has approved a merger. Prevailing first against the DOJ would have rendered the FCC’s opposition moot.

Read the full piece here.

The NCAA recently denied Todd O’Brien’s appeal to make use of the Grad Student Transfer Exception — which would allow O’Brien, who graduated St. Joseph’s with a degree in economics, to continue playing basketball while pursuing a graduate degree in Public Administration at University of Alabama-Birmingham.  St. Joe’s, apparently at the behest of a college basketball coach who appears to have has lost sight the purpose of college athletics, refused to allow O’Brien the exemption.  Its permission is required (and has apparently never been withheld in these circumstances).

O’Brien tells his story in a recent column at CNN-Sports Illustrated:

My name is Todd O’Brien. I’m 22 years old. In 2007, I became the first person from Garden Spot High (located in Lancaster County in New Holland, Pa.) to earn a Division I basketball scholarship. I attended Bucknell University from 2007 to 2008, where I made the Patriot League All-Rookie team. After the season, I decided the school and its basketball program weren’t the right fit for me. I wanted to follow the footsteps of my uncle Bruce Frank, a former Penn player, and play in the Big 5. I transferred and was given a full scholarship to play basketball at St. Joe’s for coach Phil Martelli. After sitting out in 2008-2009, I earned the starting center spot for the 2009-2010 season. Though our team struggled, I was able to start 28 games and led the team in rebounding. I also was the recipient of the team’s Academic Achievement award for my work in the classroom.

Entering the next season, I had aspirations of keeping my starting role, increasing my productivity on the court, and most importantly — winning more games. Off the court my goal was to continue getting good grades and to position myself to earn my degree studying Economics.

As the season went on things did not improve much, but on a brighter note I entered my last semester as an undergrad. On top of my regular classes, I had picked up an independent study internship at the Delaware County Municipal Building, where the focus of my study was on local economics.Though I still needed to pass three summer courses to officially earn my degree, I was allowed to walk in graduation that May. At the urging of my parents, my Economics advisor and other family friends, I began looking at graduate programs for the fall semester.

I met with Coach Martelli to inform him that I would not be returning. I had hoped he would be understanding; just a few weeks before, we had stood next to each other at graduation as my parents snapped photo. Unfortunately, he did not take it well. After calling me a few choice words, he informed me that he would make some calls so that I would be dropped from my summer class and would no longer graduate. He also said that he was going to sue me. When he asked if I still planned on leaving, I was at a loss for words. He calmed down a bit and said we should think this over then meet again in a few days. I left his office angry and worried he would make me drop the classes.

A few days later I again met with Coach Martelli. This time I stopped by athletic director Don DiJulia’s office beforehand to inform him of my decision. I told him I would be applying to grad schools elsewhere. He was very nice and understanding. He wished me the best of luck and said to keep in touch. Relieved that Mr. DiJulia had taken the news well, I went to Coach Martelli’s office. I told him that my mind had not changed, and that I planned on enrolling in grad school elsewhere. I recall his words vividly: “Regardless of what the rule is I’ll never release you. If you’re not playing basketball at St. Joe’s next year, you won’t be playing anywhere.”

With no movement on Saint Joseph’s end, my faith was left in the hands of a five-member NCAA committee. I pleaded my case, stating how St Joe’s was acting in a vindictive manner and how the NCAA must protect its student-athletes. When it was my turn to speak, I talked about how much it would hurt to lose my final season of college basketball, not just for me but for my parents, sisters and all of my relatives who take pride in watching me play. To work so hard for something, waking up at 6 a.m. to run miles on a track, spending countless hours spent in the gym shooting, and to have it all taken away because a head coach felt disrespected that I left in order to further pursue academics? It’s just not right.

Later that day the NCAA contacted UAB to inform the school that my waiver had been denied. The rules state that I needed my release from St. Joe’s, and I didn’t have it. I am the first person to be denied this waiver based on a school’s refusal. I was crestfallen. The NCAA has done a lot for me in life — I’ve gotten a free education, I’ve traveled the country playing basketball, and for all of this I am thankful. But in this instance I think they really dropped the ball. To deny a grad student eligibility to play based on the bitter opinion of a coach? You can’t be afraid to set precedent if it means doing the right thing.

My lawyer continues to plead to St Joe’s to release me, but the school no longer will discuss the issue. When my parents try to contact Coach Martelli, Don Dijulia, or President Smithson, they hide behind their legal counsel. When we try to contact the legal counsel, they hide behind the NCAA. A simple e-mail from any one of them saying they no longer object to me playing would have me suited up in uniform tomorrow, yet they refuse.

So here I am, several states away from home, practicing with the team every day, working hard on the court, in the weight room and in the classroom. I keep the faith that one day (soon, I hope) somebody from St. Joe’s will step up and do the right thing, so if that day comes I’ll be ready. I just finished my first semester of grad classes, and I enjoy it a lot. When somebody asked if I would be leaving to try to play overseas now that I’ve been denied the ability to play here, I said no. I said it before and I’m sticking to it — I’m here to get a graduate degree.

Whenever I get frustrated about the situation, I think back to something my mother told me on the phone one day. “This isn’t the end of basketball. Basketball ends when you want it to, whether that’s next year, in five years, or in 50 years. You control your relationship with the game, and nobody, not St. Joe’s, not the NCAA, can take that away from you.”

But right now, they sure are trying to.

Filed under: cartels, economics, sports