Joshua D. Wright

The Economics of Slotting Contracts

Slotting fees, per‐unit‐time payments made by manufacturers to retailers for shelf space, have become increasingly prevalent in grocery retailing. Shelf space contracts are shown to be a consequence of the normal competitive process when retailer shelf space is promotional, in the sense that the shelf space induces profitable incremental individual manufacturer sales without drawing customers from competing stores. In these circumstances, retailer and manufacturer incentives do not coincide with regard to the provision of promotional shelf space, and manufacturers must enter shelf space contracts with retailers. Retailers are compensated for supplying promotional shelf space at least partially with a per‐unit‐time slotting fee when interretailer price competition on the particular product makes compensation with a lower wholesale price a more costly way to generate equilibrium retailer shelf space rents. Our theory implies that slotting will be positively related to manufacturer incremental profit margins, a fact that explains both the growth and the incidence across products of slotting contracts in grocery retailing.

Is Antitrust Too Complicated for Generalist Judges? The Impact of Economic Complexity and Judicial Training on Appeals

The recent increase in the demand for expert economic analysis in antitrust litigation has improved the welfare of economists; however, the law and economics literature is silent on the effects of economic complexity or judges’ economic training on judicial decision making. We use a unique data set on antitrust litigation in federal district and administrative courts during 1996–2006 to examine whether economic complexity impacts antitrust decisions and provide a novel test of the hypothesis that antitrust analysis has become too complex for generalist judges. We also examine the impact of basic economic training on judges. We find that decisions involving the evaluation of complex economic evidence are significantly more likely to be appealed, and decisions of judges trained in basic economics are significantly less likely to be appealed than are decisions by their untrained counterparts. Our analysis supports the hypothesis that some antitrust cases are too complicated for generalist judges.

Google and the Limits of Antitrust: The Case Against the Antitrust Case Against Google

The antitrust landscape has changed dramatically in the last decade. Within the last two years alone, the United States Department of Justice has held hearings on the appropriate scope of Section 2, issued a comprehensive Report, and then repudiated it; and the European Commission has risen as an aggressive leader in single firm conduct enforcement by bringing abuse of dominance actions and assessing heavy fines against firms including Qualcomm, Intel, and Microsoft. In the United States, two of the most significant characteristics of the “new” antitrust approach have been a more intense focus on innovative companies in high-tech industries and a weakening of longstanding concerns that erroneous antitrust interventions will hinder economic growth. But this focus is dangerous, and these concerns should not be dismissed so lightly. In this article we offer a comprehensive cautionary tale in the context of a detailed factual, legal and economic analysis of the next Microsoft: the theoretical, but perhaps imminent, enforcement action against Google. Close scrutiny of the complex economics of Google’s technology, market and business practices reveals a range of real but subtle, pro-competitive explanations for features that have been held out instead as anticompetitive. Application of the relevant case law then reveals a set of concerns where economic complexity and ambiguity, coupled with an insufficiently-deferential approach to innovative technology and pricing practices in the most relevant precedent (the D.C. Circuit’s decision in Microsoft), portend a potentially erroneous - and costly - result. Our analysis, by contrast, embraces the cautious and evidence-based approach to uncertainty, complexity and dynamic innovation contained within the well-established “error cost framework.” As we demonstrate, while there is an abundance of error-cost concern in the Supreme Court precedent, there is a real risk that the current, aggressive approach to antitrust error, coupled with the uncertain economics of Google’s innovative conduct, will nevertheless yield a costly intervention. The point is not that we know that Google’s conduct is procompetitive, but rather that the very uncertainty surrounding it counsels caution, not aggression.

The Law and Economics of Network Neutrality

The Federal Communications Commissions Network Neutrality Order regulates how broadband networks explain their services to customers, mandates that subscribers be permitted to deploy whatever computers, mobile devices, or applications they like for use with the network access service they purchase, imposes a prohibition upon unreasonable discrimination in network management such that Internet Service Provider efforts to maintain service quality (e.g. mitigation congestion) or to price and package their services do not burden rival applications. This paper offers legal and economic critique of the new Network Neutrality policy and particularly the no blocking and no discrimination rules. While we argue the FCC‘s rules are likely to be declared beyond the scope of the agencys charter, we focus upon the economic impact of net neutrality regulations. It is beyond paradoxical that the FCC argues that it is imposing new regulations so as to preserve the Internets current economic structure; that structure has developed in an unregulated environment where firms are free to experiment with business models - and vertical integration - at will. We demonstrate that Network Neutrality goes far further than existing law, categorically prohibiting various forms of economic integration in a manner equivalent to antitrusts per se rule, properly reserved for conduct that is so likely to cause competitive harm that the marginal benefit of a fact-intensive analysis cannot be justified. Economic analysis demonstrates that Network Neutrality cannot be justified upon consumer welfare grounds. Further, the Commissions attempt to justify its new policy simply ignores compelling evidence that “open access�? regulations have distorted broadband build-out in the United States, visibly reducing subscriber growth when imposed and visibly increasing subscriber growth when repealed. On the other, the FCC manages to cite just one study - not of the broadband market - to support its claims of widespread foreclosure threats. This empirical study, upon closer scrutiny than the Commission appears to have given it, actually shows no evidence of anti-competitive foreclosure. This fatal analytical flaw constitutes a smoking gun in the FCCs economic analysis of net neutrality.

If Search Neutrality is the Answer, What's the Question?

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 around 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 terminology 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.

Does Antitrust Enforcement in High Tech Markets Benefit Consumers? Stock Price Evidence from FTC v. Intel

Antitrust enforcement efforts in the United States and abroad have been ramped up in high-tech industries, which has rekindled older and largely unresolved debates concerning the appropriate role of antitrust enforcement in high-tech markets. This paper evaluates the likely competitive effects of Intel’s conduct through two approaches: The conventional approach focuses on traditional antitrust metrics in product markets: prices and output. The second, alternative approach involves turning to financial markets for valuable information. Under either approach, the available data do not support the theory that Intel’s behavior harmed consumers.

Alcohol, Antitrust, and the 21st Amendment: An Empirical Examination of Post and Hold Laws

The 21st Amendment repealed prohibition, but granted the states broad power to regulate the distribution and sale of alcohol to consumers within their borders. Pursuant to this authority, states have established a complex web of regulations that limit the ability of beer, wine, and liquor producers to control the distribution of their product. From a consumer welfare perspective, one of the most potentially harmful state alcohol distribution regulations are “post and hold” laws (“PH laws”). PH laws require that alcohol distributors share future prices with rivals by “posting” them in advance, and then “hold” these prices for a specified period of time. Economic theory would suggest that PH laws reduce unilateral incentives for distributors to reduce prices and may facilitate tacit or explicit collusion, both to the detriment of consumers. Consistent with economic theory, we show that the PH laws reduce consumption by 2–8%. We also test whether, by reducing consumption, PH laws provide offsetting societal benefits in the form of reducing drunk driving accidents and underage drinking. We find no measurable relationship between PH laws and these social harms. These results suggest a socially beneficial role for antitrust challenges to PH laws and similar anticompetitive state regulation. If states wish to reduce the social ills associated with drinking, our results also suggest that directly targeting social harms with zero tolerance laws and lower drunk driving thresholds are superior policy instruments to PH laws.

Why the Supreme Court Was Correct to Deny Certiorari in FTC v. Rambus

This article examines some deficiencies in the CommissionA¢â‚¬â„¢s arguments in support of review of FTC v. Rambus , concluding that the Supreme Court was correct to deny the petition.

Grocery Bag Bans and Foodborne Illness

Recently, many jurisdictions have implemented bans or imposed taxes upon plastic grocery bags on environmental grounds. San Francisco County was the first major US jurisdiction to enact such a regulation, implementing a ban in 2007. There is evidence, however, that reusable grocery bags, a common substitute for plastic bags, contain potentially harmful bacteria. We examine emergency room admissions related to these bacteria in the wake of the San Francisco ban. We find that ER visits spiked when the ban went into effect. Relative to other counties, ER admissions increase by at least one fourth, and deaths exhibit a similar increase.

Favoring Dynamic over Static Competition

This chapter asks how competition policy should be shaped if it were to favor Schumpeterian competition over neoclassical static competition. Schumpeterian competition is the kind of competition that is engendered by product and process innovation. Such competition not only brings price competition – it tends to overturn the existing order. A framework that favors dynamic over static competition would put less weight on market share and concentration, and more weight on assessing potential competition and enterprise-level capabilities. Developments in evolutionary economics and the behavioral theory of the firm in recent decades indicate how the machinery of a new framework can be engineered and applied to antitrust. Introduction In 1988, in anticipation of the centennial of the Sherman Act, my Berkeley colleagues and I held a conference on campus that led to the 1992 volume titled Antitrust, Innovation, and Competitiveness , with contributions from many of the leading scholars in antitrust law and economics. The conference was designed to alert the law and economics communities to a set of emerging issues on antitrust and innovation. With hindsight, we believe it was a watershed event, and a slow and reluctant awakening to antitrust and innovation issues is now underway.