Distribution, Competition, and Antitrust / IP Law

Could Amazon Possibly Be a Monopolist? (Updated) (Again)

Deutsch: Logo von Amazon.com

(Photo credit: Wikipedia)

Franklin Foer, at the New Republic, argues that the answer is yes.  The alleged “crime”: predatory pricing — if not express, than at least in spirit.

In “There’s one huge problem with calls for anti-trust action against Amazon” at vox.com, Matthew Yglesias rightly points out that market share does not by itself a monopoly make, and further argues that

One important hint about Amazon’s non-monopoly status can be found in its quarterly financial reports. That’s where you find out about a company’s profits. In its most recent quarter, for example, Amazon lost $126 million. Losing money is pretty typical for Amazon, which is not really a profitable company. If you’d like to know more about that, I published 5,000 words on the subject in January. But suffice it to say that “low and often non-existent profits” and “monopoly” are not really concepts that go together.

Competitors hate Amazon because retail was an ultra-competitive low-margin game before Jeff Bezos ever came to town. To delve into this field and make it even more competitive and even lower-margin seems somewhere between unseemly and insane — but it’s the reverse of a monopoly.

Of course, U.S. price predation law can be violated when a firm prices below cost — and loses money — if it is likely to recoup its losses later after its competitors exit the market and it raises prices.  Query whether that is a possibility with online distribution — I don’t know, and am not taking a position for now, but there are certainly reasons to be pretty skeptical — low entry barriers and the like.

Interesting discussion, though.

Update: Paul Krugman says that “Amazon’s Monopsony Is Not O.K.”  But the problems he identifies seem largely theoretical.

Update II: The Wall Street Journal reports that Amazon just reported its biggest operating loss.

Can you ever successfully Daubert an antitrust economist?

English: The iPod family with, from the left t...

The iPod family with, from the left to the right : the shuffle 4G, the nano 6G, the classic 6G and the touch 4G (Photo credit: Wikipedia)

It’s really a very difficult thing to do — and query whether it’s worth the effort.  See, e.g., The Apple iPod iTunes Antitrust Litigation, 2014 U.S. Dist. LEXIS 136437 (N.D. Cal. Sept. 26, 2014) (Gonzalez Rogers, J.) (denying Daubert motions all around).  At least that’s true when the economist is a well-known professor at a major university.

The iPod litigation is, by the way, quite interesting . . . the court has refused to grant Apple summary judgment on the claim that an iTunes update caused consumer lock in.  In an earlier summary judgment order, the court found a triable issue of fact as to whether iTunes update 7.0 was a genuine product improvement so as to not be anticompetitive.

On the Difficulty of Dauberting Antitrust Economists

It’s difficult.  Despite a valiant effort, the defendants in In re: High-Tech Employee Antitrust Litigation, 2014 U.S. Dist. Lexis 47181 (N.D. Cal. Apr. 4, 2014) (Koh, J.), failed to exclude the expert testimony of plaintiffs’ economist, who has opined on the purported wage impact of the defendants’ alleged bilateral agreements not to cold call each other’s employees.

I won’t cover the complex statistics and econometrics here, but if you’re interested, I’m attaching a copy of the decision (click the link).

In re High-Tech Employee Antitrust Litigation

For Those in the Bay Area . . . David D. Friedman, Ph.D. talk on Ronald Coase — January 23

The University of Chicago Logo

The Chicago Economics Society Distinguished Alumni Speaker Series is hosting a talk by David D. Friedman, Professor of Law at Santa Clara University, on Thursday, January 23 at 6:00 pm at the University Club of San Francisco.

Dr. Friedman will discuss the work of the late Ronald Coase, Professor of Economics at the University of Chicago Law School and 1991 recipient of the Nobel Memorial Prize in Economics. Coase advanced legal and economic thought through his own seminal work and as the Editor of the University’s Law and Economics Journal. He is widely regarded as one of the founding scholars of the field of law and economics.

Dr. Friedman’s area of expertise ranges from business to economics to law. He has published economic analyses of punitive damages, trade-secret law, criminal punishment, the size of nations, and a variety of other topics, including medical care, population economics, the economics of war, historical perspectives on freedom, and criminal defense.

The reception begins at 6 pm and is to be followed by the presentation at 6:30 pm.

Cost is $15 per person.

Location is the University Club of San Francisco
800 Powell Street.

Non alums may use this link for ease of registration.  Alums can use this link.

Enhanced by Zemanta

Market Clearing in the Legal Education Market

According to the Law School Admission Council, the following data represent ABA applicants and applications for each of the past three falls:



The LSAC reports that “[a]s of 08/08/13, there are 385,358 Fall 2013 applications submitted by 59,426 applicants. Applicants are down 12.3% and applications are down 17.9% from 2012.” 

It’s surprising that the figures haven’t gone down further.  That’s probably due to various market imperfections, including incomplete information available to applicants about market conditions.

Enhanced by Zemanta

On How to Cross-Examine Expert (Economist) Witnesses in an Antitrust Trial

English: W. S. Gilbert's illustration for &quo...

English: W. S. Gilbert’s illustration for “Now, Jurymen, hear my advice” from Gilbert and Sullivan’s Trial by Jury (Photo credit: Wikipedia)

Having recently observed the cross-examination of an expert economist at an antitrust jury trial, I thought I’d note some observations and conclusions.

In antitrust cases, economists play an important, if not critical, role. On the liability side, they help define the relevant markets, and assess whether anticompetitive conduct occurred. On the damages side, they are largely responsible for quantifying damages (or the lack thereof).

Many lawyers deal with expert witnesses, but they are surprised at the detail and extent of antitrust economists’ expert reports. An antitrust economist – supported by many staff members – may spend hundreds or even thousands of hours on a large antitrust case, and may issue 2-4 expert reports, each of which is over 50 pages long. Often these reports relate the operation of complex regression models and are difficult to understand and explain. Lawyers spend many hours helping economists prepare these reports – or working out deposition cross-examination questions to attack them.

Yet, despite all these hours, the complexity of the economic models, and the pages and pages of reports, in a jury trial it all comes down to perhaps 2-3 hours of cross-examination. And because antitrust jury trials happen somewhat infrequently, we don’t often get to see in practice what constitutes an effective cross-examination, and what doesn’t.

Based upon my recent observations, I suggest that the following are not particularly effective approaches:

  • “Death by a thousand (or even a hundred) calculation cuts.” In pages and pages of complex reports, even the best economists are likely to make small arithmetical or mathematical errors. But if these don’t materially affect the economist’s ultimate conclusions, I think the jury is likely to think to itself: “so what; everyone makes little mistakes.” That’s particularly true when the economist is presentable and has a good demeanor. Jurors are smart enough to discount little errors, and can see the forest despite the trees. I’m not saying don’t point out any small errors, but it’s probably not worth the limited time to itemize many of them.
  • Dwelling on small mistakes of fact. Similar to the above point, in the course of preparing a lengthy expert report, an economist is likely to miss some facts in the record, or misunderstand or mischaracterize others. But if they are not large errors, I think the jury is unlikely to care.
  • Trying to get the economist to admit that his/her predictions don’t have a “sufficient” confidence level, that his/her economic model didn’t include several possible predictive variables, etc. Generally speaking, these criticisms are too deep in the weeds. The jury doesn’t care.
  • Getting the economist to agree with many premises without explaining their significance to the jury — as a way to set up your own expert’s direct examination.  I think this approach will likely be unintelligible, at least in large measure.

(I’m assuming here we’re talking about trial. Some of the above points may carry weight at a Daubert hearing.)

So what does work for an effective cross-exam? I suggest the following:

  • Pointing out fundamental mistakes or misapprehensions about record facts. If the economist missed something important, and his or her model therefore does not correspond well to reality, that’s a big deal the jury can and will understand.
  • Pointing out fundamental economic assumptions that have questionable support and that substantially bias an economic model in one direction or another.
  • Personal or professional bias. Usually it doesn’t exist (or at least it is difficult to establish), but if it can be established, it’s jury dynamite.

In short: boil it all down to the absolute fundamentals.  And then boil it down again.

Enhanced by Zemanta

Are Bar Associations Anti-Competitive?

English: Title page of Adam Smith's Wealth of ...

Title page of Adam Smith’s Wealth of Nations, 1776. (Photo credit: Wikipedia)

From the abstract of a recent paper (via Antitrust & Competition Policy Blog):


The European Commission Report on Competition in Professional Services found that recommended prices by professional bodies have a significant negative effect on competition since they may facilitate the coordination of prices between service providers and/or mislead consumers about reasonable price levels. Professional associations argue, first, that a fee schedule may help their members to properly calculate the cost of services avoiding excessive charges and reducing consumers’ searching costs and, second, that recommended prices are very useful for cost appraisal if a litigant is condemned to pay the legal expenses of the opposing party. Thus, recommended fee schedules could be justified to some extent if they represented the cost of providing the services. We test this hypothesis using cross-section data on a subset of recommended prices by 52 Spanish bar associations and cost data on their territorial jurisdictions. Our empirical results indicate that prices recommended by bar associations are unrelated to the cost of legal services and therefore we conclude that recommended prices have merely an anticompetitive effect.

Aitor Ciarreta (Universidad del Pais Vasco), Maria Paz Espinosa (Universidad del Pais Vasco) and Aitor Zurimendi (Universidad del Pais Vasco), Are Bar Associations Anticompetitive? An Empirical Analysis of Recommended Prices for Legal Services in Spain.  This recalls Adam Smith’s famous statement in The Wealth of Nations: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”  Of course, recommended prices — in a vertical distribution situation — are perfectly lawful.  But where a bar association is involved, there are horizontal (or possibly horizontal) aspects to the arrangement.  Cf. Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975) (minimum-fee schedule for lawyers published by the Fairfax County Bar Association not immune from the Sherman Act); Arizona v. Maricopa County Medical Soc., 457 U.S. 332 (1982) (maximum physicians’ fee schedule violated the antitrust laws).


No doubt there is a current oversupply of lawyers.  However, the better way to address concerns about fees is to (lawfully) reduce the supply.  See this blog post, for example.


Enhanced by Zemanta

Weekend Miscellany: Will Congress Repeal the Antitrust Laws?

I recently stumbled upon this bill (Senate Bill 2269) introduced by Senator Rand Paul a couple months ago.  It is a bill “[t]o permit voluntary economic activity.”  Who isn’t in favor of voluntary economic activity?

The bill is entitled “the Anti-Trust Freedom Act of 2012.”  But the bill probably should be named “A Bill To Repeal the Sherman, Clayton, and FTC Acts as to Individuals.”  Because here is its full text:

The Sherman Act (15 U.S.C. 1 et seq.), the Clayton Act (15 U.S.C. 12 et seq.), and section 5 of the Federal Trade Commission Act (15 U.S.C. 45) shall not be construed to prohibit, ban, or otherwise extend to any voluntary economic coordination, cooperation, agreement, or  other association, compact, contract, or covenant entered into by or between any individual or group of individuals.

I don’t know what motivated the introduction of this bill, nor do I understand why it’s limited to individuals.  (I’d read the bill as not exempting corporations from the antitrust laws — Congress knows how to specify corporations when it wants to.  But what if corporations and individuals conspire together?  Are the corporations subject to antitrust laws, while the individuals are exempt?  Would that make any sense?  Since corporations can act only through individuals, does the bill by indirect implication exempt corporations, too?)

There are interesting and robust debates about whether there is too much, or too little, antitrust enforcement in the U.S.  But this bill goes much further than anything I’ve recently seen (and I for one think it goes much too far).  I suspect it’s not going anywhere, but in today’s difficult economic times, who knows for certain?

Law Grad Salaries Down, Automated Legal Analysis Systems Marketed – Evidence of the Effects of Technology on Production and Distribution?

English: The famous red eye of HAL 9000

HAL 9000 (Photo credit: Wikipedia)

Below are two fresh links from the InterTubes, the juxtaposition of which is highly suggestive. What’s the connection, and how do they relate to distribution law? Before answering those questions, let me describe the linked materials.

First, the National Association for Legal Career Professionals (“NALP”) reports that

The median starting salary for new law school graduates from the Class of 2011 fell 5% from that for 2010 and has fallen nearly 17% just since 2009. The mean salary fell 6.5% compared with 2010, and since 2009 the mean has plunged almost 16% according to new research released today from NALP. The research also reveals that the median starting private practice salary fell over 18% from 2010 and since 2009 has fallen an astonishing 35%.

Second, a company called Neota Logic is marketing a technology that it says “solves problems in many fields just as Microsoft Excel solves financial and numerical problems – without programmers, quickly and efficiently.”

In a nutshell, Neota Logic seems to be selling expert systems (maybe something like IBM’s Watson?) that, among other things, can help answer legal questions for companies and law firms. I don’t think Neota Logic can yet replace attorneys altogether. It appears the company is marketing its expert systems more as supplements to human advice rather than as replacements. Nevertheless, this is to some extent likely the shape of things to come.

So, what is the connection between these two links? I suspect that the short-term difficulties in the legal field’s labor market are masking a longer-term trend. The Internet began reshaping and (as some like to say) “dis-intermediating” economic relations in the 1990s. But the effect wasn’t initially perceived because of (a) the dot.com bubble which was quickly followed by (b) the housing bubble. The bubbles – by inflating asset prices – for a time successfully obscured an ongoing and fundamental shift in how goods and services are provided and distributed in the global economy. But that shift is now increasing apparent.  What used to require substantial numbers of people to deliver locally can now be done by smaller numbers of people, often remotely.

That is true even in law. In most law firms, it used to be typical for two lawyers to share one secretary. Now the ratio is more like 5 to 1. Document review used to require dozens of attorneys. Now it can be automated with “smart” software that can search thousands of pages a second. Previously, a technician would need to physically service a lawyer’s computer.  Now software can be updated and fixed remotely by technicians thousands of miles away. Some have thought that the core service provided by lawyers – advice – is unassailable by technology. But given Watson, Neota Logic, and other systems, that may no longer be true (or may not be true forever, at least not entirely).

What does all this have to do with distribution and competition law? Well, maybe not that much, but maybe everything. Amazon, for example, is reportedly working on same-day delivery of products – perhaps the “Holy Grail” of retail. If successful, the system may make life very, very difficult for local retailers, who will lose their immediate delivery advantage. This is just another example of the growing effects of technology (and particularly the Internet) on various distribution and labor markets. Lower prices and better service are likely to result – but at the cost of, in this case, retailing jobs.

For better or for worse, antitrust law generally doesn’t consider such labor force effects when analyzing business arrangements. These effects are likely to only accelerate.

Enhanced by Zemanta

Is There Too Much Antitrust Enforcement in High Tech Industries?

The Washington Post last week ran an article covering this topic entitled “In Silicon Valley, fast firms and slow regulators.”

The Post quoted Ed Black, president of the Computer & Communications Industry Association, a trade group that supported the Justice Department’s case against Microsoft: “In tech, market definitions are difficult because companies are changing so fast, and that makes antitrust a blunt tool.”

The issue of “over-enforcement” is a perennial one.  But it’s hard to figure out if, as a global matter, over-enforcement really exists.

Let’s stipulate that from the perspective of an omniscient market observer, there is some optimal level of antitrust enforcement, “O.”

The problem is that it is very, very difficult to objectively determine that overall, actual enforcement exceeds (or fails to meet) “O.”

Antitrust issues and cases are highly fact-specific, and often require detailed and painstaking investigation.  That’s part and parcel of enforcement.  And while one can argue that in any given investigation, enforcement is either appropriate or not, it’s quite difficult to say that overall enforcement levels are not optimal.  Only with 20/20 hindsight from some future vantage point is it really feasible to make such a pronouncement.

Dominant firms, all things being equal, tend to think that enforcement is overly robust.  Their competitors naturally tend to disagree.  Although sometimes it is obvious who is right, often it’s not.  That’s what investigations, pretrial proceedings, motions to dismiss, and settlement discussions are for.

Enhanced by Zemanta
Optimization WordPress Plugins & Solutions by W3 EDGE
%d bloggers like this: