Social and Behavioral Sciences Commons^™

Markets In Ip And Antitrust, Herbert J. Hovenkamp

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The purpose of market definition in antitrust law is to identify a grouping of sales such that a single firm who controlled them could maintain prices for a significant time at above the competitive level. The conceptions and procedures that go into “market definition” in antitrust can be quite different from those that go into market definition in IP law. When the issue of market definition appears in IP cases, it is mainly as a query about the range over which rivalry occurs. This rivalry may or may not have much to do with a firm’s ability to charge a …

Mergers, Market Dominance And The Lundbeck Case, Herbert J. Hovenkamp

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In Lundbeck the Eighth Circuit affirmed a district court’s judgment that a merger involving the only two drugs approved for treating a serious heart condition in infants was lawful. Although the drugs treated the same condition they were not bioequivalents. The Eighth Circuit approved the district court’s conclusion that they had not been shown to be in the same relevant market.

Most mergers that are subject to challenge under the antitrust laws occur in markets that exhibit some degree of product differentiation. The Lundbeck case illustrates some of the problems that can arise when courts apply ideas derived from models …

Disparate Impact Realism, Amy L. Wax

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In Ricci v. DeStefano, 129 S. Ct. 2658 (2009), the Supreme Court recently reaffirmed the doctrine, first articulated by the Court in Griggs v. Duke Power Company, 401 U.S. 424 (1971), that employers can be held liable under Title VII of the 1964 Civil Rights Act for neutral personnel practices with a disparate impact on minority workers. The Griggs Court further held that employers can escape liability by showing that their staffing practices are job related or consistent with business necessity.

In the interim since Griggs, social scientists have generated evidence undermining two key assumptions behind that decision and its …

Tying Arrangements And Lawful Alternatives: Transaction Costs Considerations, Herbert J. Hovenkamp

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Tying arrangements often increase welfare by promoting product quality and protecting the supplier's goodwill in the tying product. When the tying product works effectively only with ancillary materials or accessories or services of a particular kind or quality, its supplier can assure the requisite quality of the ancillary product only by supplying that product itself. The cost savings defense and the defenses of quality control or good will are the most widely recognized and accepted tying defenses.

One characteristic of manufactured products is differentiation among the offerings of various brands. This in turn produces a need for more specialized provision …

Quasi Exclusive Dealing, Herbert J. Hovenkamp

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A firm's discounting policies over a single product raise concerns analogous to exclusive dealing in two situations. First, the firm may offer conditional discounts structured in such a way as to induce customers to take most of their requirements for a given product from the defendant. In addition, a firm may employ “slotting” fees or similar allowances paid by manufacturers to retailers, with the possible result that rivals have difficulty obtaining access to shelf space. Neither practice is literally "exclusive dealing," because neither involves a condition that the purchaser not deal in the goods of a rival, although they may …

Harsanyi 2.0, Matthew D. Adler

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How should we make interpersonal comparisons of well-being levels and differences? One branch of welfare economics eschews such comparisons, which are seen as impossible or unknowable; normative evaluation is based upon criteria such as Pareto or Kaldor-Hicks efficiency that require no interpersonal comparability. A different branch of welfare economics, for example optimal tax theory, uses “social welfare functions” (SWFs) to compare social states and governmental policies. Interpersonally comparable utility numbers provide the input for SWFs. But this scholarly tradition has never adequately explained the basis for these numbers.

John Harsanyi, in his work on so-called “extended preferences,” advanced a fruitful …

State Bankruptcy From The Ground Up, David A. Skeel Jr.

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After a brief, high profile debate, proposals to create a new bankruptcy framework for states dropped from sight in Washington in early 2011. With the debate’s initial passions having cooled, at least for a time, we can now consider state bankruptcy, as well as other responses to states’ fiscal crisis, a bit more quietly and carefully. In this Article, I begin by briefly outlining a theoretical and practical case for state bankruptcy. Because I have developed these arguments in much more detail in companion work, I will keep the discussion comparatively brief. My particular concern here is, as the title …

The Marginalist Revolution In Corporate Finance: 1880-1965, Herbert J. Hovenkamp

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During the late nineteenth and early twentieth centuries fundamental changes in economic thought revolutionized the theory of corporate finance, leading to changes in its legal regulation. The changes were massive, and this branch of financial analysis and law became virtually unrecognizable to those who had practiced it earlier. The source of this revision was the marginalist, or neoclassical, revolution in economic thought. The classical theory had seen corporate finance as an historical, relatively self-executing inquiry based on the classical theory of value and administered by common law courts. By contrast, neoclassical value theory was forward looking and as a result …

Tying Noncompetitive Goods, Herbert J. Hovenkamp

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Many of the classic tying cases involved tied products that were common staples such as button fasteners, canned ink, dry ice, or salt. These products were sold in competitive markets, presumably at prices very close to cost. For most of them the most likely explanations for the tie were quality control or price discrimination, both with competitively benign results in the great majority of situations. When the tied good is sold in a noncompetitive market, however, an additional consumer welfare enhancing result is likely to obtain – namely, the elimination of double marginalization, which occurs when separate sellers of complementary …

A Preface To Neoclassical Legal Thought, Herbert J. Hovenkamp

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Most legal historians speak of the period following classical legal thought as “progressive legal thought.” That term creates an unwarranted bias in characterization, however, creating the impression that conservatives clung to an obsolete “classical” ideology, when in fact they were in many ways just as revisionist as the progressives legal thinkers whom they critiqued. The Progressives and New Deal thinkers whom we identify with progressive legal thought were nearly all neoclassical, or marginalist, in their economics, but it is hardly true that all marginalists were progressives. For example, the lawyers and policy makers in the corporate finance battles of the …

When The Government Is The Controlling Shareholder, Marcel Kahan, Edward B. Rock

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As a result of the 2008 bailouts, the United States Government is now the controlling shareholder in AIG, Citigroup, GM, GMAC, Fannie Mae and Freddie Mac. Corporate law provides a complex and comprehensive set of standards of conduct to protect non-controlling shareholders from controlling shareholders who have goals other than maximizing firm value. In this article, we analyze the extent to which these existing corporate law structures of accountability apply when the government is the controlling shareholder, and the extent to which federal “public law” structures substitute for displaced state “private law” norms. We show that the Delaware restrictions on …

Making Sense Of The New Financial Deal, David A. Skeel Jr.

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In this Essay, I assess the enactment and implications of the Dodd-Frank Act, Congress’s response to the 2008 financial crisis. To set the stage, I begin by very briefly reviewing the causes of the crisis. I then argue that the legislation has two very clear objectives. The first is to limit the risk of the shadow banking system by more carefully regulating the key instruments and institutions of contemporary finance. The second objective is to limit the damage in the event one of these giant institutions fails. While the new regulation of the instruments of contemporary finance—including clearing and exchange …

A Cost-Benefit Interpretation Of The "Substantially Similar" Hurdle In The Congressional Review Act: Can Osha Ever Utter The E-Word (Ergonomics) Again?, Adam M. Finkel, Jason W. Sullivan

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The Congressional Review Act permits Congress to veto proposed regulations via a joint resolution, and prohibits an agency from reissuing a rule “in substantially the same form” as the vetoed rule. Some scholars—and officials within the agencies themselves—have understood the “substantially the same” standard to bar an agency from regulating in the same substantive area covered by a vetoed rule. Courts have not yet provided an authoritative interpretation of the standard.

This Article examines a spectrum of possible understandings of the standard, and relates them to the legislative history (of both the Congressional Review Act itself and the congressional veto …

Tying And The Rule Of Reason: Understanding Leverage, Foreclosure, And Price Discrimination, Herbert J. Hovenkamp

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Many tying arrangements are used by firms that do not have substantial market power in either of the two markets linked together by the tie. Their function must be something other than the enlargement or perpetuation of power. A few ties do involve fairly explicit exercises of market power, but they need not be used for a different purpose than the ties imposed by more competitive firms. This paper considers firms’ use of ties to exploit whatever power they already have over the tying product. The "leverage" theory sees ties as exploiting customers as a group via higher prices, whether …

A Primer On Antitrust Damages, Herbert J. Hovenkamp

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This paper considers the theory of antitrust damages and then discusses some simple models for proving them. Antitrust damages theory begins with the premise that many practices alleged to violate the antitrust laws cause no consumer harm. Others are inefficient and have few socially redeeming virtues. Still others may simultaneously increase both the efficiency of the participants and their market power. A perfectly designed antitrust policy would exonerate the first set of practices, condemn the second set, and condemn the third set only when the social cost of the restraint exceeds its social value or they produce net harm to …

The Shifting Terrain Of Risk And Uncertainty On The Liability Insurance Field, Tom Baker

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Recent sociological and historical work suggests that insurance risks often are not reliably calculable, except in hindsight. Insurance is “an uncertain business,” characterized by competition for premiums that pushes insurers into the unknown. This essay takes some preliminary steps that extend this insight into the liability insurance field. The essay first provides a simple quantitative comparison of U.S. property and liability insurance premiums over the last sixty years, setting the stage to make three points: (1) liability insurance premiums have grown at a similar rate as property insurance premiums and GDP over this period, providing yet another piece of evidence …

Quantification Of Harm In Private Antitrust Actions In The United States, Herbert J. Hovenkamp

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This paper discusses the theory and experience of United States courts concerning the quantification of harm in antitrust cases. This treatment pertains to both the social cost of antitrust violations, and to the private damage mechanisms that United States antitrust law has developed. It is submitted for the Roundtable on the Quantification of Harm to Competition by National Courts and Competition Agencies, Organization for Economic Cooperation and Development (OECD), Feb., 2011.

In a typical year more than 90% of antitrust complaints filed in the United States are by private plaintiffs rather than the federal government. Further, when the individual states …

Antitrust And Patent Law Analysis Of Pharmaceutical Reverse Payment Settlements, Herbert J. Hovenkamp

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Patent settlements in which the patentee pays the alleged infringer to stay out of the market are largely a consequence of the Hatch-Waxman Act, which was designed to facilitate the entry of generic drugs by providing the first generic producer to challenge a pioneer drug patent with a 180 day period of exclusivity. This period can be extended by a settlement even if the generic is not producing, and in any event all subsequent generic firms are denied the 180 day exclusivity period, significantly reducing their incentive to enter.

The Circuit Courts of Appeal are split three ways over such …

The Firm As Cartel Manager, Herbert J. Hovenkamp, Christopher R. Leslie

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Antitrust law is the primary legal obstacle to price fixing, which is condemned by Section 1 of the Sherman Act. Firms that engage in price fixing may try to reduce their probability of antitrust liability in a number of ways. First, members of a price-fixing conspiracy go to great lengths to conceal their illegal activities from antitrust enforcers. Second, because Section 1 condemns only concerted action, firms may structure their relationship to appear to be the action of a single entity that is beyond the reach of Section One.

In its American Needle decision the Supreme Court held that the …

The Political Economy Of Fraud On The Market, William W. Bratton, Michael L. Wachter

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No abstract provided.

Promoting The Buildout Of New Networks Vs. Compelling Access To The Monopoly Loop: A Clash Of Regulatory Paradigms, Christopher S. Yoo

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No abstract provided.

Antitrust And Innovation: Where We Are And Where We Should Be Going, Herbert J. Hovenkamp

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For large parts of their history intellectual property law and antitrust law have worked so as to undermine innovation competition by protecting too much. Antitrust policy often reflected exaggerated fears of competitive harm, and responded by developing overly protective rules that shielded inefficient businesses from competition at the expense of consumers. By the same token, the IP laws have often undermined rather than promoted innovation by granting IP holders rights far beyond what is necessary to create appropriate incentives to innovate.

Perhaps the biggest intellectual change in recent decades is that we have come to see patents less as a …

Breaching The Mortgage Contract: The Behavioral Economics Of Strategic Default, Tess Wilkinson-Ryan

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Underwater homeowners face a quandary: Should they make their monthly payments as promised or walk away and save money? Traditional economic analysis predicts that homeowners will strategically default (voluntarily enter foreclosure) when it is cheaper to do so than to keep paying down the mortgage debt. But this prediction ignores the moral calculus of default, which is arguably much less straightforward. On the one hand, most people have moral qualms about breaching their contracts, even when the financial incentives are clear. On the other hand, the nature of the lender-borrower relationship is changing and mortgage lenders are increasingly perceived as …

The Insignificance Of Proxy Access, Marcel Kahan, Edward B. Rock

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No abstract provided.

At The Conjunction Of Love And Money: Comment On Julie A. Nelson, Does Profit-Seeking Rule Out Love? Evidence (Or Not) From Economics And Law, William W. Bratton

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No abstract provided.

Reconsidering International Tax Neutrality, Michael S. Knoll

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For decades, U.S. international tax policy has shifted back and forth between territorial-source-exemption taxation and worldwide-residence-credit taxation. The former is generally associated with capital import neutrality (CIN) and the latter with capital export neutrality (CEN). One reason why national tax policy has shifted back and forth between those benchmarks is because it is widely accepted that a tax system cannot simultaneously satisfy both CEN and CIN unless tax rates on capital are harmonized across jurisdictions. In this essay, I argue that the international tax literature contains two different and conflicting definitions for CIN. Under one definition, which goes back at …

Are Those Who Ignore History Doomed To Repeat It?, Peter Decherney, Nathan Ensmenger, Christopher S. Yoo

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In The Master Switch, Tim Wu argues that four leading communications industries have historically followed a single pattern that he calls “the Cycle.” Because Wu’s argument is almost entirely historical, the cogency of its claims and the force of its policy recommendations depends entirely on the accuracy and completeness of its treatment of the historical record. Specifically, he believes that industries begin as open, only to be transformed into closed systems by a great corporate mogul until some new form of ingenuity restarts the Cycle anew. Interestingly, even taken at face value, many of the episodes described in the …

Reconceiving Corporate Personhood, Elizabeth Pollman

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Why is a corporation a “person” for purposes of the Constitution? This old question has become new again with public outrage over Citizens United, the recent campaign finance case which expanded corporate constitutional speech rights. This Article traces the historical and jurisprudential developments of corporate personhood and concludes that the doctrine’s origins had the limited purview of protecting individuals’ property and contract interests. Over time, the Supreme Court expanded the doctrine without a coherent explanation or consistent approach. The Court has relied on the older cases that were decided in different contexts and on various flawed conceptions of the corporation. …

Notice And Patent Remedies, Herbert J. Hovenkamp

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In private enforcement systems such as the one for patents, remedies perform the “public” function of determining the optimal amount of protection and deterrence. If every patent were properly granted and had just the right scope to incentivize innovation, then strict enforcement and harsh penalties for infringement would be a good idea. But in a world where too many patents are granted, their boundaries are often ambiguous and scope excessive, things are not so simple. The expected likelihood and magnitude of the penalty determines the number of infringement suits and the litigation resources that will be poured into them. As …

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 …