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Governments and firms often use committees of experts to help them make complex decisions, but conflicts of interest could bias experts’ recommendations. We focus on whether financial ties...

It has become almost an article of faith that large, zero-price platforms, such as Facebook and Google, exercise market power by offering lower levels of privacy. Yet, a rigorous examination of the assumptions underlying this data-price analogy is seriously lacking. Even more important, almost no empirical work has been done in this area. This Article contributes to the debate by filling these important gaps in the literature. After presenting a theoretical examination of the relationship between privacy and competition, we provide empirical evidence on the relationship between market power and privacy. First, using data from PrivacyGrade.org, we find no relationship between privacy grades and our proxies for market concentration—the Herfindahl-Hirschman Index (HHI) and market shares based on Google Play Store categories. Second, we collected website traffic data from SimilarWeb and matched it to DuckDuckGo’s privacy ratings for sites in thirty-seven website categories. Again, the data suggest a lack of a reliable relationship between privacy ratings and market concentration. Our theoretical analysis and empirical results cast serious doubt on the notion that firms exercise market power by reducing privacy levels. Challenging conventional wisdom, our results suggest that antitrust is a poor tool to address perceived privacy problems. Instead, if markets produce less than optimal levels of privacy, it is likely due to informational problems that have no relationship with competition. Accordingly, we conclude that privacy regulation and competition policy might be complementary, but only in one direction: consumer protection designed to increase consumer access to information about firms’ privacy practices—and firms’ ability to credibly commit to these promises—could help foster competition over privacy, but the converse is not true.

In 1993, the Supreme Court established a new standard for the admissibility of expert evidence with its decision in Daubert v. Merrell Dow Pharmaceuticals . Although whether Daubert actually has increased the reliability of expert evidence remains an open question, empirical research generally suggests that Daubert has increased the judicial role in expert testimony as the number of challenges has increased. An unexplored topic to date is how Daubert outcomes impact litigation outcomes. This paper aims to fill that gap by examining how Daubert outcomes in federal district court affect the likelihood and timing of settlement. This paper also fits into the larger empirical literature that explores how information flows impact settlement. The sample of 2127 Daubert motions made in 1017 private cases from 91 federal district courts, spanning from 2003–2014, and involving 57 different causes of action provides the most comprehensive overview of Daubert practice in federal courts to date. The main empirical results suggest that defendant Daubert wins (plaintiff wins) are associated with a reduction (increase) in the likelihood of settlement. Results from duration analysis suggest that longer pendency time for Daubert motions are associated with lower settlement rates (a 4–7% reduction in the rate of settlement for every month that a Daubert motion goes undecided). Decomposition finds that the indirect effect of Daubert pendency (delay due to the reduction in communication between parties while Daubert motions pend before the court) accounts for the majority (70%) of the measured reduction in the settlement rate. One way that courts might reduce the cost of litigation if they were to adopt “ Lone Pine ”-type procedures that structure expert discovery and concomitant Daubert motions early, especially when expert testimony is required to prove certain elements of a claim.

For over two decades, the FTC creatively employed its capacious statute to police against shoddy data practices. Although the FTC’s actions arguably were needed at the time to fill a gap in enforcement, there are reasons to believe that its current approach has outlived its usefulness and is in serious need of updating. In particular, our analysis shows that the FTC’s current approach to data security is unlikely to instill anything close to optimal incentives for data holders. These shortcomings cannot be fixed through changes to the FTC enforcement approach, as they are largely generated by a mismatch between the tools that Congress gave it over a century ago and what it needs to foster firms’ incentives to mimic socially optimal levels of care for the data they hold. Not only does the current framework likely suffer from informational deficiencies attendant to its focus on “reasonable” security that render liability standards uncertain, it also lacks the ability obtain the type of relief that will force firms to internalize the costs of their data security decisions. We examine the problem of data security enforcement through the lens of the economics of optimal precautions and identify several reasons why a strict liability regime administered by the FTC, under which firms pay for the expected harm from breaches they cause, is likely to be superior to the current framework that revolves around the concept of reasonableness. The benefits from strict liability flow from the likelihood that firms do not fully internalize the costs and benefits of their data security decisions and the relatively large informational burdens associated with measuring actual and optimal care under a negligence regime. We also show why in this informational environment strict liability is better than negligence for developing a vibrant market for cyber insurance, which will allow data security regulation to be de facto outsourced to insurers who will contract with firms for optimal levels of care. Because these private contracts will harness private information on costs and benefits from precautions, they are likely to incentivize more efficient behavior.

The extraordinary success of the digital sector of the domestic economy is indisputable. With this level of market success, growth, and influence, both economically and culturally, it is perhaps inevitable that these businesses are increasingly at the forefront of public policy discussions. Most relevant for our purposes are the now-common claims that these firms have systematically engaged in anticompetitive conduct, or are otherwise insulated from competitive forces, and that digital platforms’ exercise of monopoly power has remained unchecked at least in part due to gaps in our antitrust laws or lax enforcement of existing laws. This testimony provides insights on three important questions concerning the state of competition in the digital marketplace: (1) Are existing antitrust laws that prohibit monopolization and monopolistic conduct adequate for digital platforms?; (2) Are existing laws adequate to prohibit anticompetitive transactions including for vertical and conglomerate mergers, serial acquisitions, data acquisitions, or acquisitions of potential competitors?; and (3) Is the institutional structure of antitrust enforcement — including the current levels of appropriations to the antitrust agencies, existing agency authorities, congressional oversight of enforcement, and current statutes and case law — adequate to promote the robust enforcement of the antitrust laws?

Optimal remedies should be grounded in consumer harm. The caselaw interpreting the FTC's ability to obtain equitable monetary relief, however, has strayed far from this benchmark. Rather than requiring the FTC to show the marginal impact of deception, courts presume that everyone exposed to deception is harmed based on the fiction that the FTC has proven materiality. This approach is likely to overstate consumer harm in most circumstances involving a legitimate product, which will reduce the amount of beneficial marketplace information available to consumers. Several cases that challenge the FTC's legal authority to use 13(b) to obtain equitable monetary relief are awaiting certiorari determinations, which have led some to call for Congressional intervention to fix the statutory problem. Regardless of the outcome of this process, we see this turn of events as an opportunity for the FTC to recalibrate its consumer protection remedies to more closely mirror consumer harm. It should do so by focusing on the marginal impact of deception, a task that could be accomplished through Congressional action or on the FTC's own initiative. Regardless of the path, this marginal improvement would be an important one for consumers.

Author(s): Barnett, Jonathan; Baye, Michael R; Cooper, James C; Crane, Daniel A; Elzinga, Kenneth G; Epstein, Richard; Garza, Deborah; Hazlett, Thomas W; Hurwitz, Justin Gus; Klein, Benjamin; Klick, Jonathan; Lambert, Thomas A; Lipsky, Tad; Manne, Geoffrey A; Masten, Scott E; Ohlhausen, Maureen; Rill, James; Rybnicek, Jan; Smith, Vernon L; Teece, David; Willig, Robert; Wright, Joshua D; Yun, John M

To evaluate some complex drugs, the Food and Drug Administration (FDA) creates committees of experts who recommend whether the drugs should be approved or rejected. The popular press and earlier studies commonly report that the FDA almost never overrules these recommendations. Some say this is because both the FDA and the experts have financial ties to drug companies, leading them to approve too many drugs. Others claim the FDA and experts are both risk averse, leading them to reject too many drugs when they fear approval could draw criticism from the press and Congress. We show that FDA overrules are fairly common (16 percent of cases), and that financial ties to drug companies do not explain them. We find that in a majority of overrules, experts recommend rejection, but the FDA approves the drug anyway, suggesting that the experts could be more risk averse than the FDA. This is consistent with our finding that committees with top experts reject more drugs, perhaps to protect their reputations from being associated with drugs that later might be judged unsafe.

The FTC has been in the privacy game for almost twenty years. In that time span, the digital economy has exploded, dramatically increasing the importance of privacy regulation to the economy. Unfortunately, the sophistication of the FTC’s privacy policy has yet to keep pace with its stature. Privacy stands today where antitrust stood in the 1970s. Antitrust’s embrace of economics helped transform it into a coherent body of law that almost all agree has been a boon for consumers. Privacy regulation at the FTC is ripe for a similar revolution. We examine the history of FTC privacy enforcement and policy making, with special attention paid to the lack of economic analysis, and we show the unique ability of economic analysis to ferret out conduct that is likely to threaten consumer welfare, and provide a framework for FTC privacy analysis going forward. Specifically, the FTC needs to be more precise in identifying privacy harms and to develop an empirical footing for both its enforcement posture and prophylactic measures that it urges firms to adopt, such as “privacy by design” and “data minimization.” The sooner that the FTC begins to incorporate serious economic analysis and rigorous empirical evidence into its privacy policy, the sooner consumers will begin to reap the rewards.

This brief explains amici’s understanding of the relevant economic analysis. It explains why basic economic principles underlying the analysis of multi-sided markets lead to the conclusion that a plaintiff should be required to demonstrate, at a minimum, that: (1) the allegedly unlawful restraint caused anticompetitive effects in the form of actual or probable restricted output market-wide—a showing that logically requires analyzing both sides of a two-sided market; and (2) the defendant had sufficient market power to restrict output in a properly defined market. These two requirements align with sound economics and would also provide clear guidance for courts in applying the rule of reason.

Risk of developing Alzheimer's disease is increased by older age, genetic factors, and several medical risk factors. Studies have also suggested that dietary and lifestyle factors may influence risk, raising the possibility that preventive strategies may be effective. This body of research is incomplete. However, because the most scientifically supported lifestyle factors for Alzheimer's disease are known factors for cardiovascular diseases and diabetes, it is reasonable to provide preliminary guidance to help individuals who wish to reduce their risk. At the International Conference on Nutrition and the Brain, Washington, DC, July 19–20, 2013, speakers were asked to comment on possible guidelines for Alzheimer's disease prevention, with an aim of developing a set of practical, albeit preliminary, steps to be recommended to members of the public. From this discussion, 7 guidelines emerged related to healthful diet and exercise habits.

Governments and firms often use committees of experts to help them make complex decisions, but conflicts of interest could bias experts’ recommendations. We focus on whether financial ties to drug companies bias FDA drug advisory committee (AC) members’ voting on drug approval recommendations. We find little significant evidence that AC members vote in their financial interests. We find stronger evidence that experts’ characteristics such as expertise level or associations with advocacy groups drives voting tendencies (biases) either for or against approval. We show that a Congressional Act that effectively excluded financially-conflicted AC members resulted in a sharp drop in average AC member expertise, and an unintended increase in approval voting. Our results have implications for the popular goal of eliminating financial conflicts from all medical decisions. Eliminating conflicts could sharply reduce the level of expertise of the decision makers and lead to unexpected voting tendencies.

The issue of consumer payments and data security has reached a high level of public and regulatory interest as a result of a number of recent high-profile data breaches that compromised consumer payment cards. In addition, the ecosystem of consumer payment security has changed dramatically in recent years as a result of the introduction and rapid spread of contactless payment technologies. In response to growing concerns about payment fraud, payment card networks in the United States have moved toward the rapid replacement of traditional magnetic-stripe payment card technology to new EMV (Europay, Mastercard, and Visa) computer chip–based technology. Notably, however, US card issuers and networks have chosen not to adopt the personal identification number (PIN) method of customer verification that has been standard in the United Kingdom and much of Europe for the past decade or so but instead have chosen signature verification as the preferred method. This article conducts an economic analysis of the regulation of consumer payment cards and payment card fraud. We examine the marginal benefits and costs from heightened levels of payment card security. We examine the dynamic evolution of payment card anti-fraud technology over time and suggest that there is little evidence of market failure in the provision of payment security by card networks and issuers and little reason to believe that mandating one exclusive, decades-old, static verification technology (namely, chip and PIN) would be likely to improve overall consumer welfare and economic efficiency today. We conclude that rather than blindly adopting the particular verification technology that Europe put into place many years ago, US regulators should be alert to the evolving and contemporary nature of consumer payments and the fluid nature of threats to data privacy and thus should not freeze or hamper the adaptability of the payment system.

Every state has occupational licensing laws or regulations, which require individuals seeking to offer a certain service to the public first to obtain approval from the state. Occupational licensing requirements historically derive from a desire to protect unwitting consumers from bad actors. In recent years, however, the number of licensed professions in the United States has skyrocketed and licensing requirements have become increasingly onerous. When incumbents wield licensing requirements not as a defensive shield to protect consumers but as an offensive sword to exclude new entrants, serious concerns regarding the competitive implications of the licensing schemes arise. Self-interested incumbents have incentives that may differ from consumers, and these self-interested incumbents can—and sometimes do—impose requirements that do not enhance quality, but rather restrict output, increase prices, and hamper innovation. This Paper explores the competitive implications of state occupational licensing regimes. Part I analyzes the historical development and justification for occupational licensing. Part II reviews the empirical evidence regarding the effects of occupational licensing on factors such as quality, price, innovation, and availability. Part III summarizes how antitrust law, and particularly the state action doctrine, treats state board-enacted occupational licensing. Part IV explores the interplay of occupational licensing and antitrust laws in the United States, delving into a particularly striking case at the intersection of occupational licensing and innovation: Teladoc, Inc. v. Texas Medical Board. Part V provides some suggestions for agency engagement in monitoring the effective use of occupational licensing.

Consumer protection acts (CPAs) developed with the goal to protect American consumers from fraudulent, deceptive and unfair business practices. Initially, Congress, through the FTC Act, sought to define and deter conduct that the existing legal system largely failed to remedy. Subsequently, states localized and individualized these rights while maintaining a careful balance between protecting consumers and preventing the proliferation of lawsuits that harm both consumers and businesses. But in recent decades, this thoughtful balance has yielded to damaging legislative and judicial overcorrections at the state level with a common theoretical mistake: the assumption that more CPA litigation automatically yields more consumer protection. The result has been an explosion in consumer protection litigation, which serves no social function and for which consumers pay indirectly through higher prices and reduced innovation. Using data on state and federal CPA litigation from 2000-2013, we find substantial increases in CPA litigation in both, with federal litigation growing almost twice as fast in federal than state courts (a cumulative average growth rate of 6.1 percent vs. 3.4 percent). We also find that the financial crisis appears to have played a large role in the recent growth in CPA litigation — the financial services industry is the most common target for private CPA actions in a set of cases we sample, and a large proportion of these cases involve debt collection or federal lending or housing statutes. We conclude that although the entire suite of expansive provisions in CPAs — enhanced damages, class actions, attorneys fees, and eliminating the need to show harm — are responsible for the explosion in private CPA litigation, from a social standpoint, requiring consumers to show cognizable harm would be the most efficient reform.

The issue of consumer payments and data security has reached a high level of public and regulatory interest as a result of a number of recent high-profile data breaches that compromised consumer payment card numbers, such as at Target, Home Depot, and Michael’s. In addition, the ecosystem of consumer payments security has changed dramatically in recent years as a result of the introduction and rapid spread of contactless payment technologies, such as ApplePay. In response to growing concerns about payments fraud, payment card networks in the United States have moved toward the rapid replacement of traditional magnetic stripe payment card technology to new EMV computer chip-based technology, which creates a unique encrypted identifier for each transaction, thereby making it more difficult for thieves to steal card numbers and create counterfeit cards. Notably, however, American card issuers and networks have chosen not to adopt the PIN method of verification that has been standard in the United Kingdom and much of Europe for the past decade or so, but instead have adopted signature as the preferred method of customer verification. Many large retail chains and retail trade associations have nevertheless lobbied for regulatory or statutory action to impose a PIN-verification requirement in addition to the addition of EMV chips. This article conducts an economic analysis of the regulation of consumer payment cards and payment cards fraud. We examine the marginal benefits from heightened levels of payment cards security (such as requiring PIN verification for purchases) and marginal costs as well, such as the impact on speed, convenience, and functionality for consumers and merchants, especially uptake of electronic payments by smaller merchants. We examine the dynamic evolution of payment cards anti-fraud technology over time and suggest that there is little evidence of market failure in the provision of payments security by card networks and issuers and little reason to believe that mandating one exclusive, decades old, static verification technology (namely Chip & PIN) would be likely to improve overall consumer welfare and economic efficiency today. We conclude that rather than blindly adopting the particular verification technology Europe put into place many years ago, U.S. regulators should be alert to the evolving and contemporary nature of consumer payments and fluid nature of threats to data privacy and not freeze or hamper the adaptability of the payments system.

After North Carolina State Board of Dental Examiners v. FTC, it is clear that the antitrust laws have an important role to play in reforming occupational licensing, but the exact framework remains an open question. Under a rule of reason analysis, health and safety rationales are off limits. But if state board cannot draw on these types of consumer protection arguments to defend their actions, as a practical matter, can a state board ever win an antitrust suit? Some have suggested applying a modified rule of reason to incorporate non-competition justifications. But these approaches threaten to summon the ghost of Lochner and raise problems of subjectivity and predictability that are sure to arise when courts and enforcers are called on to weigh losses in competition against purported gains across other dimensions. Rather than expanding the rule of reason to accommodate non-competition concerns, there is a better path that draws from PolyGram Holding, Inc. v. FTC. Given the vast empirical literature pointing to the harms from state regulation of professions, board actions that restrain competition should be treated as inherently suspect as a matter of law. As such, in an antitrust challenge, the burden of persuasion immediately should fall to the board to provide an efficiency rationale that is both cognizable and plausible. If the board cannot muster a story involving cognizable benefits to competition to justify the restraint, it should be condemned as per se illegal, and the authorizing law subject to preemption. If the board is able to offer a justification that sounds in competition, it still must provide a plausible reason why either the restraint offers procompetitive benefits or does not harm competition. If they cannot meet this burden, the restraint should be condemned summarily. If they do, courts will conduct a full-blown rule of reason in inquiry.

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.

Economics at the Federal Trade Commission (FTC) covers both the antitrust and consumer protection missions. In this year's essay, we focus mainly on the competi- tion-side of the agency. Drawing on a wealth of recent research, we provide descriptive and analytical information about the petroleum industry. Mergers, as always, were a major preoccupation of the FTC, and we discuss a few oil industry mergers as well as one lead- ing litigated case - Arch Coal's acquisition of Triton Coal. Finally, we review the empir- ical literature on the effects of vertical restraints, noting that the literature supporting an animus toward such restraints is surprisingly weak.

The legality of nonprice vertical practices in the U.S. is determined by their likely competitive effects. An optimal enforcement rule combines evidence with theory to update prior beliefs, and specifies a decision that minimizes the expected loss. Because the welfare effects of vertical practices are theoretically ambiguous, optimal decisions depend heavily on prior beliefs, which should be guided by empirical evidence. Empirically, vertical restraints appear to reduce price and/or increase output. Thus, absent a good natural experiment to evaluate a particular restraint's effect, an optimal policy places a heavy burden on plaintiffs to show that a restraint is anticompetitive.

Every administration in recent history has attempted to reduce regulatory redundancies. One area of regulatory redundancy that deserves attention is the FTC’s and Department of Transportation’s (DOT) consumer protection authority over online travel agents (OTAs), which generated $111 billion in revenue last in 2013. This regulatory redundancy guarantees that two agencies will oversee OTAs, prevents harmonization of online consumer protection policy, and is likely to impose unnecessary costs on OTAs to adhere to two separate regulatory regimes. The importance of this conflict will grow as privacy and data security become preeminent consumer protection issues and DOT expands its jurisdiction to online information providers. Efficiency suggests the FTC as the sole consumer protection overseer of OTAs. Only the FTC has the current capacity to regulate all OTA activities, and it enjoys unrivaled expertise with respect to e-commerce consumer protection. Further, in contrast with FTC’s ex post enforcement approach, which focuses on actual or likely consumer harm, DOT’s ex ante regulatory approach is ill-suited for the fast moving world of e-commerce. Finally, the FTC faces more serious internal and external constraints on its enforcement authority, which tends to temper the potential for regulatory overreach. There are several possible ways to effect this regulatory reform, ranging from the complete abolition of DOT’s aviation consumer protection authority and the FTC Act’s common carrier exemption, to a memorandum of understanding between FTC and DOT that harmonizes policy.

Privacy is about being “let alone,” so in one sense, privacy means to separate yourself from the world. Paradoxically, by concealing facts about yourself, observers view you as less separated from everyone else. They can no longer make out the features that distinguish you from those to whom you bear a superficial resemblance. In this manner, privacy promotes what economists call “pooling.” Markets, however, tend to benefit from “separation” — the ability to distinguish between different types. This tension between privacy and market efficiency — between pooling and separation — is on full display in the burgeoning privacy law scholarship surrounding big data, which has centered on so-called “predictive privacy harms.” This scholarship has begun to seep into policy discussions, leading to proposals to limit the ability of firms to use big data. Privacy without a doubt is valuable. It’s woven into the fabric of our society. But we must be careful to discern between privacy’s intrinsic and strategic values before prescribing drastic ex ante restrictions to address predictive privacy harms. The major contribution of this paper is to develop a positive framework based on the economics of contracts and torts to identify when limiting big data predictions may be justified. This framework suggests that when strategic privacy is at issue, the mechanisms should be rooted in antidiscrimination law — which embody the choices that society has made about which traits are fair game for classification — rather than privacy law. Alternatively, privacy law should be used when intrinsic privacy is implicated. The analysis suggests that ex ante restrictions on use make sense only in the narrow circumstances in which there is likely to be agreement that the big data predictions implicate highly sensitive information. Alternatively, when there is little agreement on how privacy harms are likely to be suffered, the default regulatory posture should be one of notice of collection and use, with the Federal Trade Commission enforcing a firm’s promises.

This comment is submitted in response to the European Commission’s (EC’s) public consultation on the Regulatory Environment for Platforms, Online Intermediaries, Data, Cloud Computing, and the Collaborative Economy.The comment addresses: (1) concerns that the EC’s survey methodology and design is not conducive to generating reliable and policy-relevant data; (2) the economic analysis of platforms and multi-sided markets; (3) the dangers to competition and consumers of new ex ante regulation designed to regulate platforms, as opposed to relying upon existing European competition and consumer protection laws to address any potential anticompetitive effects or consumer harm arising from conduct by platform owners; and (4) the economic analysis of privacy and data security and its implications for new regulation.

This article is a bit of serendipity. It results from a vacation trip taken by the authors and their wives two summers ago. While visiting the reconstructed mining town of South Pass City, Wyoming, they remarked that the numerous legends and displays did not always accurately convey historical wage and price information to the modern reader in a meaningful manner. Approximately four days and 800 miles later, while reading a historical marker at the top of Galena Pass south of Stanley, Idaho, they decided the phenomenon was sufficiently ubiquitous to merit an article. The authors wish to thank their sons (Jay Borden, Mark Borden, Reid Cooper, and Kelly Cooper) who, being variously located throughout North America, performed the field work that produced many of the examples cited in this article.

Foreword: James C. Cooper INTRODUCTION: PLANTING THE SEEDS OF THE REGULATORY REVOLUTION Chapter 1: James C. Miller Causes and Implications of the Regulatory Revolution at the FTC Chapter 2: Panel Discussion Politics and Policy in 1981 PART I: JURISDICTION, POLICY, AND PROCEDURE Chapter 3: William E. Kovacic The Federal Trade Commission and the Assignment of Regulatory Tasks Chapter 4: Julie Brill The Future of FTC Jurisdiction Over Antitrust and Consumer Protection: A Commentary Chapter 5: Joshua D. Wright & Angela Diveley Do Expert Agencies Outperform Generalist Judges? Some Preliminary Evidence from the Federal Trade Commission Chapter 6: A. Douglas Melamed Paradigm Shopping: Section 5, the FTC, and the Courts PART II: CONSUMER PROTECTION Chapter 7: Fred S. McChesney Consumer Protection and James Miller at the Federal Trade Commission Chapter 8: J. Howard Beales, III, Timothy J. Muris & Robert Pitofsky In Defense of the Pfizer Factors Chapter 9: Paul H. Rubin & Thomas M. Lenard The FTC Then and Now: Privacy Chapter 10: Paul A. Pautler Regulation and Behavioral Economics in the Post-Miller FTC PART III: ANTITRUST Chapter 11: Richard S. Higgins & Mark Perelman Tying to Mitigate the Deadweight Loss of Monopoly Pricing Chapter 12: Daniel A. Crane Section 5 and the Innovation Curve CONCLUSION: IMPLICATIONS FOR FUTURE FTC ENFORCEMENT Chapter 13: Panel Discussion Lessons for Setting Priorities Index

Section 5 of the Federal Trade Commission (FTC) Act gives the FTC an undefined mandate to prosecute ‘unfair methods of competition’. For nearly 100 years, the FTC has searched tirelessly for the meaning of this amorphous concept. Since 1992, the FTC has continued to define Section 5 through a series of consent decrees. Absent any external constraint, the FTC appears to have broad discretion to define the reach of Section 5 beyond the Sherman Act. This discretion causes uncertainty, which is likely to deter beneficial conduct. It also creates incentives to divert resources from productive to redistributional purposes. The recent FTC investigation of Google illustrates the FTC’s discretion to define the reach of Section 5. This article suggests several reforms, including making Section 5 coterminous with the Sherman Act, or having the FTC issue guidelines that limit Section 5 to conduct that clearly harms consumers through adverse effects on competition, and that would not otherwise fall under the antitrust laws.

Most professions in the United States are regulated by boards composed of industry practitioners, who in their official roles routinely engage in anticompetitive conduct. Until the Supreme Court’s landmark decision in North Carolina State Board of Dental Examiners v. FTC, many believed that such conduct was beyond the reach of antitrust enforcement as long as it was taken pursuant to state policy to displace competition — a standard met with relative ease. After North Carolina Dental, states now must additionally take ownership of the anticompetitive actions of these boards to avoid the full force of the antitrust laws. In this manner, North Carolina Dental has the potential to prompt a large-scale restructuring of the state regulatory apparatus. This article explores the potential for antitrust preemption to play a role in this restructuring. I argue that, to the extent that unsupervised boards’ anticompetitive conduct would be justified on non-competition concerns, they are rendered defenseless in any rule of reason inquiry, and hence are subject to a de facto per se standard. Rather than adjusting the rule of reason inquiry to allow courts to weigh non-competition concerns in these cases, the better alternative would be to preempt the laws altogether. This approach has several advantages. First, it would avoid a dissonance between antitrust and due process inquiries into the same conduct. Second, it would act as a penalty default for states, and like penalty defaults in contracts, such a rule would assign the regulatory decision to the low-cost information provider — the state, rather than the court. Finally, this approach vindicates federalism to a greater extent than a modified rule of reason. The only role for a federal court under a preemption approach would be to uphold or strike down the law granting the board authority to engage in the suspect conduct. This decision, moreover, would be based on an objective analysis of the board’s regulatory structure, rather than a subjective weighing of competition and non-competition concerns.

While the Joint Air Component Coordination Element (JACCE) was initially an ad hoc organization designed to bridge the coordination gap between the Joint Force Land Component Commander's (JFLCC) fielded subordinates and geographically separated supporting Joint Force Air Component Commander (JFACC), it is now a formally entrenched part of both Joint and United States Air Force (USAF) doctrine. However, the collective experience gained employing the JACCE during both Operations IRAQI FREEDOM (OIF) and ENDURING FREEDOM (OEF) provides mixed results regarding its actual effectiveness at delivering the desired level of air support to ground combat operations. The purpose of this paper is not to dispute the legitimate value of operational level liaison elements, but to examine the limitations and inconsistencies of the JACCE concept as currently described in doctrine, and to discuss how this concept should be improved and implemented to ensure the most effective air support for ground forces in combat. Therefore, given the use of a theater JFACC in the US Central Command (USCENTCOM) area of responsibility (AOR) in accordance with Joint and USAF doctrine, the current JACCE concept is inadequate, and future Joint operations will be better served by employing a dedicated Commander, Air Force Forces (COMAFFOR) to deliver effective and decisive airpower at the Joint Task Force (JTF) and sub-JTF levels.

Because a patient must have a prescription to purchase contact lenses, prescribing eye care professional (ECPs) have incentives to take advantage of locked-in patients. I use the Fairness to Contact Lens Consumers Act (FCLCA) – which outlawed lock-in – as a natural experiment to perform (to my knowledge) the first empirical examination of the effect of lock-in on aftermarket prices. Examination of the pre- and post-FCLCA price gap between ECPs and online sellers indicates that pricing in the contact lens market has not systematically changed since FCLCA. One conjecture from these results is that search costs may be responsible for persistent ECP premiums in this market. To the extent that they are generalizable, these results also indicate that the current antitrust treatment of power derived from proprietary aftermarkets may be welfare reducing.

Behavioral economics (BE) examines the implications for decision-making when actors suffer from biases documented in the psychological literature. This article considers how such biases affect regulatory decisions. The article posits a simple model of a regulator who serves as an agent to a political overseer. The regulator chooses a policy that accounts for the rewards she receives from the political overseer — whose optimal policy is assumed to maximize short-run outputs that garner political support, rather than long-term welfare outcomes — and the weight the regulator puts on the optimal long run policy. Flawed heuristics and myopia are likely to lead regulators to adopt policies closer to the preferences of political overseers than they would otherwise. The incentive structure for regulators is likely to reward those who adopt politically expedient policies, either intentionally (due to a desire to please the political overseer) or accidentally (due to bounded rationality). The article urges that careful thought be given to calls for greater state intervention, especially when those calls seek to correct firm biases. The article proposes measures that focus rewards to regulators on outcomes rather than outputs as a way to help ameliorate regulatory biases.

The Twenty-first 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 percent. We also test whether PH laws provide offsetting benefits in the form of reducing a range of social harms associated with alcohol consumption. We find no evidence of such offsetting benefits. Taken together these results suggest that PH laws are socially harmful and result only in a wealth transfer from marginal alcohol consumers, who are unlikely to exert externalities on society, to wholesalers. These results also 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 suggest that increasing taxes and directly targeting social harms are superior policy instruments to PH laws.

Behavioral economics (BE) examines the implications for decision-mak- ing when actors suffer from biases documented in the psychological literature. This article considers how such biases affect regulatory decisions. The article posits a sim- ple model of a regulator who serves as an agent to a political overseer. The regulator chooses a policy that accounts for the rewards she receives from the political over- seer—whose optimal policy is assumed to maximize short-run outputs that garner political support, rather than long-term welfare outcomes—and the weight the regula- tor puts on the optimal long run policy. Flawed heuristics and myopia are likely to lead regulators to adopt policies closer to the preferences of political overseers than they would otherwise. The incentive structure for regulators is likely to reward those who adopt politically expedient policies, either intentionally (due to a desire to please the political overseer) or accidentally (due to bounded rationality). The article urges that careful thought be given to calls for greater state intervention, especially when those calls seek to correct firm biases. The article proposes measures that focus rewards to regulators on outcomes rather than outputs as a way to help ameliorate regulatory biases.

Dealing with the complex problem of pregnancy in adolescence may involve working with many people. If the physician approaches the patient with an attitude of acceptance and understanding, the adolescent girl may be helped to make realistic decisions concerning her pregnancy and to adjust in a healthy manner. If she does not receive such assistance, pregnancy may be a misunderstood event that leads to further negative psychologic sequelae.

This article was prepared as part of a recent symposium celebrating the Ninetieth Anniversary of the founding of the Federal Trade Commission. In addition, Fall 2004 marks the Thirtieth Anniversary of a pivotal moment in the establishment of the modern advocacy program at the FTC, Chairman Lewis Engman's speech on the economic burden that inefficient transportation regulation policies were imposing on the American economy. Although the FTC has been involved in advocacy activities since its founding, Engman's speech symbolized a new aggressiveness on the part of the FTC in using its expertise to work with other governmental actors at all levels of the political system and in all branches of government to design policies that further competition and consumer choice. Notwithstanding the beneficial impact that advocacy activities have had on the economy, the fortunes of the advocacy program have waxed and waned over time. In part, these mixed fortunes may reflect a lack of fundamental grounding of advocacy within the core mission of the FTC. The advocacy program, moreover, often has been politically controversial, exposing the Commission to criticism from special interests, Congress, and other governmental actors. This article explores the theory and practice of competition advocacy, with the goal of explaining why the advocacy program should be recognized as a core element of the Commission's mission. Advocacy can be used in conjunction with many of the FTC's other tools, and in many situations the judicious use of advocacy can provide a low-cost and effective alternative to other enforcement options. The advocacy program is a unique and cost-effective tool for carrying out this mission. Because consumers are disadvantaged in the political arena vis-a-vis industry, they are likely to be unable to stop anticompetitive regulation on their own. Antitrust immunities, moreover, sometimes put anticompetitive regulation beyond the reach of traditional enforcement. By providing a means for the FTC to represent consumers' interests directly in the policy-production mechanism, the advocacy program can overcome these two hurdles and provide protection for consumers at relatively low cost.

In recent years divergence between United States ("US") and European Union ("EU") competition policy has garnered a lot of attention. One particular area where these differences are evident is the treatment of vertical restraints. In the USA, an antitrust plaintiff must show that a vertical agreement is likely to harm competition - that is, reduce economic welfare. EU competition law, on the other hand, places a lower burden on the European Commission ("EC"). The EC recently has promulgated a block exemption regulation ("BER") that defines circumstances under which vertical arrangements are automatically exempted under Article ("Art.") 81(3); still, European competition law condemns many more vertical agreements than does US antitrust law. "Dominant" firms entering into vertical agreements receive even harsher treatment under EU competition law. Because the Guidelines to the BER explicitly exclude dominant firms from exemption under Art. 81(3), it appears that Art. 81 proscribes dominant firms from entering into vertical agreements that restrict the behavior of the contracting parties. Additionally, Art. 82 discourages dominant firms from entering into vertical agreements. This paper uses a Bayesian framework to analyze the disparate treatment of vertical arrangements in the USA and EU. The practice of antitrust is the problem of inferring the competitive consequences of various types of market conduct. We argue that an optimal enforcement estimator would minimize an expected social loss function, where the expectation is taken over the posterior probability that a given practice is anticompetitive, given evidence in a particular case. Empirical literature informs priors, whereas theory informs the likelihood. We show how differences in antitrust treatment of vertical practices can be explained by different loss functions, even when each jurisdiction shares the same beliefs regarding the theoretical and empirical effects of vertical restraints.