Law Commons^™

Competitive Harm From Vertical Mergers, Herbert J. Hovenkamp

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The antitrust enforcement Agencies' 2020 Vertical Merger Guidelines introduce a nontechnical application of bargaining theory into the assessment of competitive effects from vertical acquisitions. The economics of such bargaining is complex and can produce skepticism among judges, who might regard its mathematics as overly technical, its game theory as excessively theoretical or speculative, or its assumptions as unrealistic.

However, we have been there before. The introduction of concentration indexes, particularly the HHI, in the Merger Guidelines was initially met with skepticism but gradually they were accepted as judges became more comfortable with them. The same thing very largely happened again …

Fractured Markets And Legal Institutions, Herbert J. Hovenkamp

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This article considers how we can improve legal outcomes of conflicts that occur in very small arenas. The conflicts can be of many kinds, including a nuisance dispute between neighbors, an impending collision between two moving vehicles, a joint decision between spouses about whether or on what terms to continue their marriage, or a disagreement between managers and shareholders within a firm.

The prevailing literature typically refers to these small environments as “markets.” Thinking of them as markets, however, averts our attention from larger environments that should be considered but that often do not function well as private markets. For …

Antitrust And The Close Look: Transaction Cost Economics In Competition Policy, Herbert J. Hovenkamp

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This paper briefly examines the contributions of Transaction Cost Economics (TCE) to antitrust analysis, focusing on vertical integration and its contractual substitutes, mainly, minimum and maximum resale price maintenance, vertical nonprice restraints, tying, bundled discounts and exclusive dealing and related exclusionary contracts.

TCE generally assumes that business firms organize their activities so as to maximize their value, which they can do both by economizing and also by obtaining higher prices. Sensible antitrust policy recognizes that both advantageous contracting and monopoly can be profitable to a firm, and it can be expected to pursue both when they are available. Nevertheless, the …

Coase Minus The Coase Theorem--Some Problems With Chicago Transaction Cost Analysis, Pierre Schlag

Pierre Schlag

In law as well as economics, the most well-known aspect of Coase’s “The Problem of Social Cost,” is the Coase Theorem. Over the decades, that particular notion has morphed into a crucial component of Chicago law and economics—namely, transaction cost analysis. In this Article, I deliberately bracket the Coase Theorem to show that “The Problem of Social Cost” contains far more interesting and unsettling lessons—both for law as well as for economics. Indeed, while Coase’s arguments clearly target the Pigouvian attempts to “improve on the market” through government correctives, there is, lurking in those arguments, a much more profound critique …

Resource Movement And The Legal System, Herbert J. Hovenkamp

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In "The Problem of Social Cost" Ronald Coase considered several common law disputes among neighbors whose economic activities conflicted with one another. For example, Sturges v. Bridgman was a nineteenth century nuisance case involving a pediatrician whose practice was hindered by his neighbor, a confectioner whose operation required a noisy mechanical mortar & pestle. Coase showed that if high transaction costs did not interfere, private bargaining would provide a solution which he characterized as efficient -- namely, that the right to continue would be given to the person who valued it most. For example, if the pediatrician valued the right …

Coase, Herbert J. Hovenkamp

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This brief essay considers the career, contributions, and influence of Ronald Coase, who passed away in September, 2013. Comments are welcome.

Antitrust And The Movement Of Technology, Herbert J. Hovenkamp

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Patents create strong incentives for collaborative development. For many technologies fixed costs are extremely high in relation to variable costs. A second feature of technology that encourages collaborative development is the need for interoperability or common standards. Third, in contrast to traditional commons, intellectual property commons are almost always nonrivalrous on the supply side. If ten producers all own the rights to make a product covered by a patent, each one can make as many units as it pleases without limiting the number that others can make. That might seem to be a good thing, but considered ex ante it …

Local Rules And A Global Economy: An Economic Policy Perspective, Dan Danielsen

Dan Danielsen

This article explores the growing significance and theoretical implications of ‘local rules’—such as Chinese labour standards, US financial regulation and Swiss bank secrecy rules—in the global economy. In particular, the argument developed is that Ronald Coase’s framework for analysing the effects of legal rules on economic welfare can help to reveal important weaknesses in current international legal approaches to analysing the transnational impact of local rules as well as contribute to a ‘global economic policy perspective’ better attuned to problems of power in the global regulatory order. Such a perspective will help us to see the effects of power differences …

Coase, Institutionalism, And The Origins Of Law And Economics, Herbert J. Hovenkamp

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Ronald Coase merged two traditions in economics, marginalism and institutionalism. Neoclassical economics in the 1930s was characterized by an abstract conception of marginalism and frictionless resource movement. Marginal analysis did not seek to uncover the source of individual human preference or value, but accepted preference as given. It treated the business firm in the same way, focusing on how firms make market choices, but saying little about their internal workings.

“Institutionalism” historically refers to a group of economists who wrote mainly in the 1920s and 1930s. Their place in economic theory is outside the mainstream, but they have found new …

Coasean Markets, Herbert J. Hovenkamp

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Coase’s work emphasized the economic importance of very small markets and made a new, more marginalist form of economic “institutionalism” acceptable within mainstream economics. A Coasean market is an association of persons with competing claims on a legal entitlement that can be traded. The boundaries of both Coasean markets and Coasean firms are determined by measuring not only the costs of bargaining but also the absolute costs of moving resources from one place to another. The boundaries of a Coasean market, just as those of the Coasean business firm, are defined by the line where the marginal cost of reaching …

Harvard, Chicago And Transaction Cost Economics In Antitrust Analysis, Herbert J. Hovenkamp

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Since Oliver Williamson published Markets and Hierarchies in 1975 transaction cost economics (TCE) has claimed an important place in antitrust, avoiding the extreme positions of the two once reigning schools of antitrust policy. At one extreme was the “structural” school, which saw market structure as the principal determinant of poor economic performance. At the other extreme was the Chicago School, which also saw the economic landscape in terms of competition and monopoly, but found monopoly only infrequently and denied that a monopolist could “leverage” its power into related markets. Since the 1970s both the structural and Chicago positions have moved …

Neoclassicism And The Separation Of Ownership And Control, Herbert J. Hovenkamp

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"Separation of ownership and control" is a phrase whose history will forever be associated with Adolf A. Berle and Gardiner C. Means' The Modern Corporation and Private Property (1932), as well as with Institutionalist economics, Legal Realism, and the New Deal. Within that milieu the large publicly held business corporation became identified with excessive managerial power at the expense of stockholders, social irresponsibility, and internal inefficiency. Neoclassical economists both then and ever since have generally been critical, both of the historical facts that Berle and Means purported to describe and of the conclusions that they drew. In fact, however, within …

Corporations And Social Costs: The Wal-Mart Case Study, Benedict Sheehy

ExpressO

This article examines the role of the corporate vehicle in the creation of social costs. The article identifies some of the political commitments and philosophies behind the differing notions of corporations. Social costs are those activities which result from business activity and cause uncompensated harm to society. The founding contribution to the law and economics discussion by Ronald Coase is given a thorough treatment. The paper next, turns to the dominant explanation of corporate structure, namely the law and economics model developed expounded by Easterbrook and Fischel. It then applies the theoretical discussion in a case study of the world’s …

The First Great Law & Economics Movement, Herbert J. Hovenkamp

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Beginning in the 1880s American economists turned their attention to the law in a way unprecedented in American thought. Some legal academics in turn incorporated economics into their thinking about the law. Whether their output or its impact were great enough to warrant calling their efforts a law and economics "movement" is worth debating. This essay argues that there was such a movement.

Four things account for the increasing interest in law and economics at the turn of the century: (1) the widespread application of evolutionary models to the development of both law and economic theory; (2) the influence of …

The Problem Of Transaction Costs, Pierre Schlag

Pierre Schlag

No abstract provided.