The current Federal Trade Commission (FTC) appears to have one overarching goal: find more ways to sue companies. The three Democratic commissioners (with the one Republican dissenting) issued a new policy statement earlier today that brings long-abandoned powers back into the FTC’s toolkit. Under Chair Lina Khan’s leadership, the FTC wants to bring challenges against “unfair methods of competition in or affecting commerce.” If that sounds extremely vague, that’s because it is.

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Abstract

This article compares the classic liability rules, negligence and strict liability, under the hypothesis that injurers and victims formulate subjective beliefs about the probabilities of harm. Parties may reasonably disagree in their assessment of the precautionary measures available: a measure regarded as safe by one party may be regarded as not safe by the other. By relying on the notions of Pareto efficiency and “No Betting” Pareto efficiency, the article shows that negligence is the optimal liability rule when injurers believe that the probability of harm is always higher than the victims do, while strict liability with overcompensatory damages is the optimal rule in the opposite case. The same results apply to bilateral accidents and, specifically, to product-related harms in competitive markets. Overcompensatory (“punitive”) damages provide consumers with insurance against their own pessimism.

Recently departed Federal Trade Commission (FTC) Commissioner Noah Phillips has been rightly praised as “a powerful voice during his four-year tenure at the FTC, advocating for rational antitrust enforcement and against populist antitrust that derails the fair yet disruptive process of competition.” The FTC will miss his trenchant analysis and collegiality, now that he has departed for the greener pastures of private practice.

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Abstract

It is widely assumed that platform technology markets are inherently prone to converge on monopoly outcomes in which a single firm or a handful of firms enjoy market power due to a combination of network effects and switching costs. This assumption supports both proposed and enacted regulatory interventions that deploy competition law to place significant limitations on a wide range of practices by platform incumbents. In this paper, I revisit this market power assumption from theoretical and empirical perspectives. As a matter of theory, informed by selected real-world examples, I show that the conditions under which a platform incumbent can plausibly exercise market power are substantially more demanding than is commonly supposed. As a matter of empirics, I provide evidence from the food-delivery and cloud-computing markets, showing that widespread attributions of market power to leading platforms in these markets lack persuasive evidentiary support. Contrary to conventional wisdom, both theory and evidence cast significant doubt on the standard view that platform ecosystems are prone to converge on entrenched monopolies that justify preemptive intervention by competition regulators.

Interest of Amici Curiae

Amici curiae are seventeen law professors, economists, and former government officials with expertise in antitrust, patent law, and law and economics. Their work has appeared in the American Economic Review, the Journal of Law and Economics, the Yale Law Journal, and the Harvard Law Review, among others, and collectively has been cited more than 16,000 times. As scholars and former public servants, they have an interest in promoting the coherence and development of legal doctrines consonant with sound economic principles and in ensuring that both consumers and the general public benefit from new inventions and technologies. They have no stake in any party nor in the outcome of this proceeding. Amici write to serve the Commission and the public interest by elaborating the legal and economic principles that frame this dispute. The amici and their affiliations are listed in the Appendix.

Introduction

This case presents a complex set of transactions whereby Illumina, Inc. (“Illumina”) created GRAIL, Inc. (“GRAIL”), spun it off while retaining a minority interest, and now has reacquired it. Complaint Counsel seeks to unwind this recent reacquisition. But as Chief Administrative Law Judge D. Michael Chappell’s Initial Decision (“ID”) recognized, vertical mergers are structurally distinct from horizontal mergers. Horizontal mergers carry inherent risks of anti-competitive effect; vertical mergers, by contrast, often offer procompetitive benefits. (See ID 169.) Unwinding this transaction would set a dangerous precedent by deterring innovative companies like Illumina from developing and commercializing new products or, at a minimum, restricting consumers’ access to those products. Antitrust enforcers should be held to a higher burden before risking such market disruptions.

An overbroad presumption against vertical mergers—of the type Complaint Counsel advocates here—is particularly inappropriate in the complicated institutional landscape of biopharmaceutical markets, especially those still in their infancy. Here, for example, it is difficult to predict how the market for Multi-Cancer Early Detection Tests (“MCEDs”) will operate, particularly when true alternatives to GRAIL’s products from other producers are still years away. (See ID 143.) Given the singular importance of capital investment in developing, testing, and commercializing MCEDs, the risks to consumers of blocking such investment are particularly high. Accordingly, courts have refused to enjoin vertical mergers without compelling, concrete evidence that a vertical merger is likely to harm competition to a substantial degree. See, e.g., United States v. AT&T, Inc., 916 F.3d 1029, 1032 (D.C. Cir. 2019). Scholars and courts alike have recognized that the efficiency gains from vertical mergers make it impossible to treat this class of transactions as presumptively anticompetitive. As Judge Chappell acknowledged, challenges to vertical mergers require a more fact-intensive inquiry. (ID 168-69.)

Nor should a company’s self-imposed restraints, such as Illumina’s Open Offer, be discounted in the way that Complaint Counsel advocates. (See Complaint Counsel Br. (“CC Br.”) 35.) The Open Offer is a market fact, not a legal remedy, and implicates Complaint Counsel’s prima facie case. Market participants should be encouraged to structure their operations ex ante to avoid potential anticompetitive effects. When markets are new and incentives are speculative, the Commission should not presume that a company in a vertical merger would breach its contractual obligations, especially when there are clear performance metrics that are easily monitored and enforced by the relevant parties.

The potential costs of preventing vertical mergers are high, as experience in emerging-technology markets amply demonstrates. Given the ultimate benefits to consumers, the Commission should be wary about importing the strong presumptions from horizontal-merger law and upsetting a model of spin-off and reacquisition that offers significant procompetitive benefits to consumers.

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Abstract

The question “what is equality?”, applied to the distribution of resources across races, suggests the following answer: when there appears to be no need for a policy that focuses on improving the welfare of one race relative to another. There is another way to approach the same question: equality is when traditionally-recognized paths to advancement do not give preference to or disadvantage an individual because of his race. Notice the difference here is between end-state and process-based notions of equality, a distinction Nozick emphasized in his examination of justice in distribution. Nozick rejected end-state theories of justice in distribution. I side with Nozick’s approach and argue that the only morally justifiable and administratively feasible approach to determining equality in the distribution of resources across races is through a process-based definition. I explore the implications of this argument for Grutter v. Bollinger.

America is deeply polarized, increasingly split into two, roughly equal, political camps. Each side blames the other for causing the situation. In a speech last week, President Biden accused Republicans of being a threat to democracy itself.

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Abstract

Take-up rates for windstorm-resistant buildings remain relatively low even in areas with high exposure to hurricanes and tropical storms. To further investigate this issue, we extend the theory on WTP for prevention to include risk attitudes up to the fourth order, deriving total effects and testable predictions for mixed risk averters and mixed risk lovers’ WTP relative to higher order risk-neutral benchmarks. We then employ field experiments to elicit and test the effects of higher order risk attitudes (HORAs) and information friction on coastal homeowners’ WTP for precautionary building standards with insurance discounts. To elicit risk attitudes and WTP, we employ 50-50 model-free risk apportionment lotteries and payment card WTP experiments. Empirical analyses reveal insightful heterogeneity in the correlation between homeowners’ HORA subgroups and WTP for precautions that is partially consistent with theory. We demonstrate strong causal effects of information friction on WTP for precaution in the absence of a truncated WTP range; however, the effects appear to be positive among risk lovers.

Research still matters, so I recommend video from the Federal Trade Commission’s 15th Annual Microeconomics Conference, if you’ve not already seen it. It’s a valuable event, and it’s part of the FTC’s still important statutory-research mission. It also reminds me that the FTC’s excellent, if somewhat diminished, Bureau of Economics still has no director; Marta Woskinska concluded her very short tenure in February. Eight-plus months of hiring and appointments (and many departures) later, she’s not been replaced. Priorities.

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