BIOGRAPHIES
David Evans is an authority on the economics of high-technology and platform-based businesses, primarily as it relates to competition policy and intellectual property. He is the author of four books and more than 70 articles in journals ranging from the American Economic Review, Foreign Affairs, and The Yale Journal of Regulation. His many opinion pieces have appeared in newspapers around the world including the Washington Post, Wall Street Journal, Financial Times, Les Echos, and El Pais. A specialist on competition policy in the U.S. and European Union, a topic on which he has written and lectured extensively, he has served as an expert and testified before courts, arbitrators, regulatory authorities and legislatures in the U.S. and Europe. He has led the economic analysis in several important antitrust cases over the last 25 years including US v. AT&T. Most recently, Dr. Evans has led an international economic team on a landmark series of cases involving a large global technology firm in the U.S. and Europe. From September 2004, he is Visiting Professor of Competition Law and Economics, University College London. He was an Adjunct Professor of Law at Fordham Law School from 1985 -1995, where he taught antitrust law and economics. Dr. Evans has a Ph.D. from the University of Chicago.
Luke Froeb is the Director of the U.S. Economic Bureau of the Federal Trade Commission (FTC). He previously taught at Tulane University and then worked as an economist in the Antitrust Division of the United States Department of Justice. He worked on price-fixing, bid-rigging and merger cases. Since 1993, he has taught Managerial Economics and Regulation and Antitrust in the MBA programs at Vanderbilt. Professor Froeb received his undergraduate degree from Stanford University and a PhD degree from the University of Wisconsin. He has published extensively on auctions, mergers, and econometrics.
Robert W. Hahn is co-founder and executive director of the American Enterprise Institute-Brookings Joint Center and a resident scholar at AEI. Previously, he worked for the Council of Economic Advisers. He also has served on the faculties of Harvard University and Carnegie Mellon University. Dr. Hahn frequently contributes to leading scholarly journals and general-interest periodicals, including the American Economic Review, Yale Law Journal, Science, and the New York Times., He is the author of Reviving Regulatory Reform: A Global Perspective and In Defense of the Economic Analysis of Regulation. In addition, Dr. Hahn is co-founder of the Community Preparatory School--an inner-city middle school in Providence, Rhode Island, that provides opportunities for disadvantaged youth to achieve their full potential.
Michael Waldman is now the Charles H. Dyson Professor in Management at Cornell University’s Johnson School. Professor Waldman's main research interests lie in microeconomic theory with specific applications to the fields of industrial organization, labor economics, and the theory of organizations. He has published in most of the top journals in economics including the American Economic Review, Journal of Political Economy, Quarterly Journal of Economics, Review of Economic Studies, Journal of Economic Perspectives, Journal of Labor Economics, and Rand Journal of Economics. Recent publications have considered such diverse topics as the strategic role of product tying in enhancing market power, the role of leasing in the new-car market, and wage and promotion dynamics inside firms. Professor Waldman is currently a Co-Editor at the Journal of Economic Perspectives, an Associate Editor at the Quarterly Journal of Economics, and is listed in both the third and fourth editions of Who's Who in Economics. He has also been a visiting professor at the University of Chicago's Graduate School of Business and Yale University's School of Organization and Management.
Conference Summary
Katrina Kosec and Rohit Malik
Antitrust Policy and Vertical Restraints
Introduction
On May 12, the AEI-Brookings Joint Center for Regulatory Studies hosted a conference on antitrust policy and the economics and law of vertical restraints, focusing on theoretical and empirical work indicating that the costs of vertical restraints often outweigh their benefits. Luke Froeb of the Federal Trade Commission discussed the failures of theory in formulating efficient policy and presented empirical evidence on the effects of vertical restraints. David Evans of the Law and Economics Consulting Group explained the need for a better test to determine if tying is anticompetitive. Michael Waldman of Cornell University described the economics of tying in durable goods markets.
Federal Trade Commission, Luke Froeb
Luke Froeb argued that when government limits the ability of firms to contract vertically, consumer welfare declines. For example, gasoline divorcement laws preventing refiners from owning gas stations increased the price of gasoline by three cents per gallon. Laws in the United Kingdom making it illegal for pubs to affiliate with brewers increased the price of beer. Mr. Froeb also illustrated the proliferation of antitrust laws worldwide over the past century. While theory may suggest that this increase in regulation yields positive outcomes, Mr. Froeb demonstrated that the opposite is true. He emphasized that vertical restraints imposed by government are particularly problematic when the United States exports its antitrust laws to developing countries. According to Froeb, exporting our antitrust regimes to developing countries lays the “microfoundations of poverty” in these countries.
Law and Economics Consulting Group, David Evans
David Evans described the Jefferson Parish tying test that the Supreme Court formulated in the 1983 Jefferson Parish decision. Mr. Evans explained that this is a test for determining whether certain tying practices should be deemed anticompetitive. The first part of the test determines whether the products suspected of being tied are indeed “separate products.” If they are, then the next step of the test examines whether the business has market power in the “tying product” (the product consumers must take to get the “tied product”) and whether the tying affects a substantial portion of interstate commerce. If it does, then the tying is considered unlawful. He explained that courts use the Jefferson Parish tying test as their main decision framework for tying cases.
Mr. Evans then argued that the test should be modified to presume that tying is legal and competitive except when the firm holds inordinate market power. Mr. Evans illustrated this point with examples from both the U.S and Europe: the Jefferson Parish case, the Visa/ Mastercard credit-debit card litigation, and Hilti vs. European Commission. He explained how in all four cases, the test was severely inaccurate in identifying anticompetitive tying practices. The Jefferson Parish case arose when Jefferson Parish hospital required surgical patients to use the hospital’s anesthesiologists, because the hospital has an exclusive contract with an anesthesiologist group. The hospital was charged with anticompetitive tying, but Mr. Evans argued that this was not anticompetitive because the hospital had no market power. In the Visa/ Mastercard credit-debit card litigation, the credit card giants were accused of anticompetitive typing because they required merchants that accepted these two credit cards to also accept debit cards—and thus pay for both services. Mr. Evans explained that even after Visa and Mastercard were forced to stop tying the two types of transactions, the fee for credit card charges rose while the fee for debit card charges declined, with the combined fee remaining unchanged. This is strong economic evidence that this tying was not anticompetitive. In Hilti vs. European Commission, Hilti—a company that made nail guns, cartridges, and nails—was charged with illegally tying nails and cartridges. Mr. Evans explained that economists now almost unanimously agree that this tying was not anticompetitive.
Cornell University Johnson School of Business, Michael Waldman
Michael Waldman began by presented the results of previous analyses of tying. He explained how multiple analyses conclude that a monopolist of one product will not have an incentive to tie if her product is “essential” (meaning that all uses of the complementary good of interest require the initial, monopolized product). Mr. Waldman showed that the previous result does not hold in durable goods settings characterized by product upgrades over multiple periods. In these cases, tying is advantageous for the monopolist—especially when consumer switching costs are present. His conclusion is that the use of tying to extend market power will be more common in durable goods settings than in nondurable goods settings. Mr. Waldman finished by arguing that tying can both improve social welfare and serve a firm’s strategic purpose, as in Microsoft’s case.
Question and Answer Session
The questions following the presentations focused on the applications of antitrust theory to policy. One audience member asked the panelists to define antitrust. Mr. Froeb defined antitrust as a government action to curtail a tying practice that harms consumer welfare. Mr. Evans modified this definition to incorporate legal and administrative considerations, such as whether the “error” costs of pursuing an antitrust case are not exorbitant. Another question concerned the use of economics in making antitrust decisions. Mr. Evans responded that the application of economics is often difficult, but that the government should take a free-market orientation. He commended the European antitrust authorities for being “free-market economists interested in antitrust.” Mr. Waldman maintained that by default, antitrust authorities worldwide should allow tying, unless it is a clear-cut anticompetitive case or there is a sufficient process for evaluation.
Katrina Kosec and Rohit Malik, researchers at the AEI-Brookings Joint Center for Regulatory Studies, prepared this conference summary. |
