Economist, co-author, and sometimes TOTM guest David Evans (UCL, University of Chicago School of Law) has an excellent note on “Why Now is Not the Right Time To Revamp Consumer Protection,” based on remarks made at the New York Federal Reserve Board-New York University Conference on Regulating Consumer Financial Products yesterday in New York.  Evans makes some of the points we discuss in our joint work criticizing the intellectual basis for the Consumer Financial Protection Agency, but also offers a concise and powerful case against “revamping” consumer protection too hastily, or without attention to the institutional details or the economic evidence.  Geoff’s post the other day on credit card regulation, for example, points out precisely the types of harmful errors that can be made on “behalf” of consumers when invoking the behavioral economics literature without analyzing it (or the related empirical evidence) closely. Evans makes six essential points — and I’m excerpting here — but I suggest readers check out the whole thing…

Read the full piece here. 

Adam Levitin has a blog post up responding to Todd Zywicki’s recent WSJ editorial on credit card interchange fees.  As most readers know, this is a topic of significant interest around here, and Josh blogged about Todd’s op-ed just yesterday.  I’m on vacation so I’ll be brief, but I thought Adam’s post was so wrong it necessitated my getting off the beach for a reply.  Adam writes…

Read the full piece here. 

A couple weeks ago, Geoff wrote concerning the DOJ’s misguided antitrust interest in Monsanto. With that in mind, I was very interested to see today’s announcement that Monsanto’s earnings and gross margins are significantly off for its fiscal first quarter.  According to the Wall Street Journal report, Monsanto posted a loss for the quarter due to a 36% drop in sales and lower margins resulting from price decreases.  Leading the drop, sales of the company’s Roundup and other herbicide products tumbled 63%!

Read the full piece here.

Fresh off of its enactment this summer of new regulations on consumer credit card terms, some in Congress want to go further—to impose a national usury ceiling on credit card interest rates and limits on interchange fees (the price that credit card issuers charge to merchants that accept their cards). That caps on interest rates harm consumers is well understood. But price controls on interchange fees would also result in consumers paying more and getting less.

Read the full piece here.

Summary

Frank Easterbrook’s seminal analysis of error-cost minimization in The Limits of Antitrust has special relevance to antitrust intervention in markets where innovation is a critical dimension of competition. Both product and business innovations involve novel practices. Historically, the economics profession has tended initially to rely upon monopoly explanations for such practices. Courts have reacted with similar hostility.

But almost always there has followed a more nuanced economic understanding of the business practice that recognized its procompetitive virtues. Antitrust standards have adjusted occasionally to reflect that new economic learning. This sequence has produced a fundamental link between innovation and antitrust error that transcends the uncontroversial point that the probability of false positives and their social costs are both higher in the case of innovation and innovative business practices.

We discuss some principles for applying Easterbrook’s error-cost framework to innovation. We then discuss the historical relationship between antitrust error and innovation. We conclude by challenging the conventional wisdom that the error-cost approach implies that the rule of reason, rather than per se rules, should apply to most forms of business conduct. We instead identify simple filters to harness existing economic knowledge to design simple rules that minimize error costs. We make five such proposals.

Introduction

Biotech seeds have become an enormously-­?valuable part of the food supply in the US and abroad. A substantial portion of soybeans, corn, cotton and other agricultural products grown in the US are derived from genetically-­?modified seeds. The genetic traits that give these seeds their value—traits that confer resistance to herbicide and high yields, for example—are often developed by large agribusiness companies, with enormous research and development investments. The process is technologically advanced, time- and money-intensive, a risky investment, and subject to various layers of regulation. The process of developing a new seed variety can take 15 years and require hundreds of millions of dollars of investment. Regulations from the USDA, the FDA and the EPA can slow or halt the process, and international trade regulations (particularly from countries that ban or severely restrict importation of GMOs) complicate the control and the commercialization of the final products.

In part for these reasons, the biotech seed industry—like all segments of the US agricultural industry—has seen a substantial increase in concentration. Large scale is of obvious benefit to companies engaged in massively expensive R&D programs that can achieve economies of scale and thus lower costs. Meanwhile, there are also likely other vertical efficiencies associated with contractual arrangements between various players in the transgenic supply chain:

Vertical efficiencies such as reduced transactions costs and coordination achieved by exploiting the complementarities between traits and traited seed assets can also reduce costs. Closer, more precise coordination between levels in the transgenic supply chain may result in more efficient creation of new transgenic varieties in increasingly differentiated product markets.[1]

Thus it is not surprising that the period of increasing innovation has been accompanied with an increase in concentration as innovating firms assembled the necessary, complementary assets to develop and commercialize their innovations, often through vertical and horizontal mergers and acquisitions.[2] The remarkable gains in biotech seed development since the industry’s infancy less than 20 years ago, along with the complexities of the industry and our limited understanding of the economic significance of organizational choices in the industry, should counsel strongly against hasty antitrust intervention in the industry. Consumers enjoy significant benefits from innovation that must be considered before responding too quickly or improperly to complaints about increased concentration, especially if the complaints come merely from competitors.

Read the full comment here.

[1] Diana L. Moss, “Transgenic Seed Platforms: Competition Between a Rock and a Hard Place?,” American Antitrust Institute White Paper (October 23, 2009), available at http://www.antitrustinstitute.org/Archives/seed.ashx.

[2] Id. at Figure 2. While Moss happens to conclude that this inverse correlation is a surprise and struggles to find explanations for the seeming contradiction, the proffered explanations are unpersuasive (or irrelevant). See Nicholas Kalaitzandonakes & Bruce Bjornson, Vertical and horizontal coordination in the Agro-­ biotechnology industry: Evidence and implications, 29 J. AG. AND APPL. ECON. 129 (1997) for a more relevant analysis of industry forces.

Biotech seeds have become an enormously-valuable part of the food supply in the US and abroad.  A substantial portion of soybeans, corn, cotton and other agricultural products grown in the US are derived from genetically-modified seeds.  The genetic traits that give these seeds their value—traits that confer resistance to herbicide and high yields, for example—are often developed by large agribusiness companies, with enormous research and development investments.  The process is technologically-advanced, time- and money-intensive, a risky investment, and subject to various layers of regulation.  The process of developing a new seed variety can take 15 years and require hundreds of millions of dollars of investment.  Regulations from the USDA, the FDA and the EPA can slow or halt the process, and international trade regulations (particularly from countries that ban or severely restrict importation of GMOs) complicate the control and the commercialization of the final products.

Read the full comments here.

I’m delighted to report that the Liberty Fund has produced a three-volume collection of my dad’s oeuvre.  Fred McChesney edits, Jon Macey writes a new biography and Henry Butler, Steve Bainbridge and Jon Macey write introductions.  The collection can be ordered here.

Read the full piece here.

A TOTM reader sends me the following interesting development on an emerging dispute over shelf space competition in Israeli supermarkets…

Read the full piece here.