Mark Glick

Profit rate equalization in the U.S. and Europe: An econometric investigation

Abstract Although the equality of profit rates has been a key concept in classical as well as neoclassical economics, there are few empirical studies ascertaining to what extent profit rates are equalized or a tendency toward equalization can be observed. Using recently published data, we estimate an econometric model of profit rate convergence for the United States and four European countries. We compare size and significance of interindustry profit rate differentials in Europe and the United States and examine the sensitivity of the results to the definition of the rate of profit and the time period considered.

Theories of the Great Depression: Why Did Profitability Matter?

This paper attempts to show that inadequate levels of profitability played an important role in the onset of the Great Depression. Three popular alternative views of the crash are first criticized: the Monopoly View, the Underconsumption Theory, and the Monetarist Explanation. In our opinion, the underlying cause of the crash was the instability at the end of the decade of the 1920s which resulted from an earlier decline in the rate of profit.

Brenner on Competition

This paper criticizes Brenners emphasis on competition within Manufacturing in his analysis of the falling profit rate, and the subsequent extension of this fall to the entire economy. His assumptions concerning price competition appear arbitrary and proofs are deficient. Brenner cannot escape the reliance on the rise of wages, contrary to what he contends in his criticism of profit-squeeze theory. Several basic theoretical issues, such as adjustment by prices (as in neoclassical models) or by quantities produced (as in Keynesian models), partial or general analysis are not treated properly. For Marx, the decline of the profit rate causes competitive wars; the inverse relationship is posited by Brenner.

Market share and market power in merger and monopolization cases

In light of the growing sophistication of the tools of industrial organization economics and reliance on the federal courts to resolve complicated competitive issues, it may be time for the courts to make greater use of economists in analyzing antitrust cases. While the costs of such an endeavor remain unexplored, we argue below that the benefits may be significant. In particular, we assert that the legal precedent requiring the courts to draw inferences about market power based primarily or exclusively on market shares and/or market concentration1 can often be misleading. However, the only alternative to such judge-made bright-line rules is to utilize modern economic tools to undertake more extensive competitive analyses. The latter choice is essentially the course that the antitrust enforcement agencies are following. This article explores some of the arguments in favor of such an approach.

Towards a More Reasoned Application of the Robinson-Patman Act A Holistic View Incorporating Principles of Law and Economics in Light of Congressional Intent

We take an economic perspective to analyze the recurring criticisms of the Robinson-Patman Act as being anticompetitive or inefficient. We determine that the legislative history of the Act identifies economically rational objectives that are consistent with the efficiency concerns of so-called modern antitrust law. Further, we reject (as unnecessary and inconsistent with the Act’s clear goals and legislative intent) recent attempts to narrow the Act’s applications through judicial interpretation of provisions such as the cost justification defense, the “like grade and quality” requirement, and the competitive injury element.

Comments on Articles in the Kaplow Special Issue

We find ourselves largely in agreement with the arguments made by Coate and Simons but less so with the contentions of Hovenkamp and Markovits. In particular, we concur with Coate and Simons that market definition using the hypothetical monopolist test allows the analyst to identify the “broad forces affecting the competitive process”1 and that a full competitive analysis is advanced by defining the participants and likely entrants into the relevant market.2 We further agree that Kaplow erroneously ascribes to market definition the single goal of providing a measure of market power as expressed in the Lerner index, that Kaplow ignores other important roles and advantages of using market definition in analyzing unilateral effects issues, and that Kaplow overstates the precision, generality, and practical usefulness of his proposed replacement for market definition. In particular, Coate and Simons point out that Kaplow has chosen not to address the hypothetical monopolist test methodology as implemented using the Merger Guidelines five percent test for market definition. Because this methodology is now essentially the standard methodology for market definition, much of what Kaplow has to say THE ANTITRUST BULLETIN: Vol. 57, No. 4/Winter 2012 : 957

Good Riddance to Market Definition

Professor Kaplow contends that the use of market definition and market shares in antitrust analysis is fundamentally flawed and should be abandoned. We challenge that conclusion by showing that it is based on a misperception of the purpose and practice of market definition, an overstatement of the flaws of market definition, and an overstatement of the workability of the direct measurement of market power that Professor Kaplow proposes as a replacement. Ultimately, market definition is a useful, albeit imperfect, tool that requires care to apply properly. In our view, market definition is a valuable part of a full-blown competitive analysis that provides an analytical construct—a multipart test—that helps regulators, judges, juries, and advocates make sense of dynamic conditions, evaluate the forces at play, and reach a reasoned decision.