Economics 382
Topics in Public Policy
toward Industry

Spring 2000
Th 1:30-4
HRM 311

R. N. Langlois

Syllabus and Reading List

Although the title suggests that this is a “topics” course, I intend it in fact to be a relatively thorough survey of the economics of antitrust and regulation. It is a companion to Economic 381, which is the theory course, so we will not explore all the avenues of modern Industrial Organization theory. We will, however, treat theory extensively at a common-sense and policy-relevant level. Indeed, I expect to talk mostly about theory and history; you will bring in law and policy in your assignments.

Course Requirements.

The requirements for the course will be two major papers. a “where are we?” paper and a case study paper.

· The “where are we?” paper will be an attempt to capture the current state of economic theory and antitrust policy on a particular issue. Issues might include predatory pricing, resale price maintenance, exclusive dealing, tying arrangements, etc. Issues in intellectual property rights and regulation are also fair game. The idea would be to survey

(a) what economists have said on the issue in order to arrive at an understanding of the current state-of-the art, including ongoing controversies and

(b) where matters stand on the issue from the point of view of legal precedent and the policy of the relevant antitrust or regulatory agencies.

· The case study paper will look at a particular antitrust case (either ongoing or historical) or an particular legal, legislative, or policy issue in intellectual property rights or regulation. It is possible, but not necessarily desirable, to pick the same issue for the case study as for the theory/policy paper.

In order to avoid the dreaded incomplete, you need to get me final drafts of both papers in time for me to grade them before the deadline for late grades. Let’s say on the first day of final exams.

Reading Materials.

There is no text that covers the material the way this course will cover it. We will rely mostly on journal articles, which is in any case the usual way of doing things in a graduate course. Nonetheless, I have indicated some readings in Viscusi, Vernon, and Harrington, Economics of Regulation and Antitrust. Cambridge: MIT Press, 1995, second edition. It is better on regulation than antitrust, and we will rely on it more toward the end of the course. It will be on reserve. I have assigned almost all the chapters from Thomas M. Jorde and David J. Teece, eds., Antitrust, Innovation, and Competitiveness. New York: Oxford University Press, 1992. You may consider buying a copy, although this too will be on reserve. I will also refer a lot to a couple of somewhat old but still useful paperbacks: Richard A. Posner, Antitrust Law: An Economic Perspective. Chicago: University of Chicago Press, 1976, and Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself. Basic Books, 1978 (new edition 1995). They will be on reserve, but you might want to have your own copies.

NOTE: The online version of the syllabus will be updated periodically throughout the semester. It includes as many links to online versions of articles as I can find. Articles in the American Economic Review, Journal of Political Economy, Journal of Economic Literature, and Journal of Economic Perspectives, and the Quarterly Journal of Economics more than five years old are available online at JStor, which requires that you either access the link through the UConn domain or use something called a proxy server. (The computer center has online information about the latter.)

Those of you who prefer paper copies can find journal articles in the bound-periodicals stacks on the third floor of the library. They are thus effectively on reserve. Etiquette demands that you reshelf journals immediately after you use them so that others can find them. Many journals are also available in 339; same etiquette applies..

In addition to the published references below, here are some websites that may be of interest for the course and your papers.

Sequence of Topics

1. Antitrust and monopoly.

1.1. Competition and monopoly: theory.

1.1.1. Neoclassical theory and the SCP paradigm.

Viscusi, et al., Economics of Regulation and Antitrust, chapter 3.

Posner, Antitrust Law: An Economic Perspective, chapter 2.

Leonard W. Weiss, “The Structure-Conduct-Performance Paradigm and Antitrust,” University of Pennsylvania Law Review 127: 1104-1140 (April 1979). (On reserve.)

1.1.2. Chicago and after.

Harold Demsetz, “Two Systems of Belief about Monopoly,” in Harvey Goldschmid, et al., eds., Industrial Concentration: the New Learning. Boston: Little-Brown, 1974. (On reserve.)

Richard A. Posner, “The Chicago School of Antitrust Analysis,” University of Pennsylvania Law Review 127: 925-948 (April 1979), reprinted in E. Thomas Sullivan, ed., The Political Economy of the Sherman Act (Oxford 1991), both on reserve.
Herbert Hovenkamp, “Antitrust Policy after Chicago,” Michigan Law Review 84: 213 (1985).

1.1.3. Dynamic and Schumpeterian approaches.

Paul J. McNulty, “Economic Theory and the Meaning of Competition,” Quarterly Journal of Economics, 82(4): 639-656 (Nov., 1968).

F.A. Hayek, “Competition as a Discovery Procedure,” in idem, New Studies in Philosophy, Politics, Economics, and the History of Ideas. Chicago: University of Chicago Press, 1978. (On reserve.)

Joseph A. Schumpeter, Capitalism, Socialism, and Democracy, New York: Harper, 1950, pp. 81-106. (On reserve.)

Richard R. Nelson and Sidney G. Winter, “The Schumpeterian Tradeoff Revisited,” American Economic Review 72(1): 114-132 (March 1982).

1.1.4. Barriers to entry.

Joe S. Bain, Barriers to New Competition. Cambridge: Harvard University Press, 1956, generally, but esp. pp. 1-19. (On reserve.)

Franco Modigliani, “New Developments on the Oligopoly Front,” Journal of Political Economy 66(3): 215-232 (June 1958).

Spiro J. Latsis, “A Research Programme in Economics,” in S. J. Latsis, ed., Method and Appraisal in Economics. Cambridge: Cambridge University Press, 1976. (On reserve.)
George Stigler, The Organization of Industry. Homewood, Ill.: R. D. Irwin, 1968, chapter 6. (On reserve.)

Harold Demsetz, “Barriers to Entry,” American Economic Review 72(1): 47-57 (1982).

1.1.5. Standards and network effects.

Paul A. David, “Clio and the Economics of QWERTY,” American Economic Review75(2): 332-337 (1985).
S. J. Liebowitz and Stephen E. Margolis, “The Fable of the Keys,” Journal of Law and Economics 33(1): 1-25 (April 1990).
S. J. Liebowitz and Stephen E. Margolis. 1994. “Network Externalities: An Uncommon Tragedy,” Journal of Economic Perspectives 8(2): 133-150.
S. J. Liebowitz and Stephen E. Margolis, “Path-dependence, Lock-in, and History,” Journal of Law, Economics, and Organization 11: 205-226 (1995).
Nicholas Economides, “The Economics of Networks,” International Journal of Industrial Organization 14(6): 673-699 (October 1996).
Michael Katz and Carl Shapiro, “Antitrust in Software Markets,” Working Paper, University of California at Berkeley, 17 March 1998.
Lawrence J. White, “U.S. Public Policy toward Network Industries,” Working Paper, New York University, 1997.
Richard N. Langlois, “Technological Standards, Innovation, and Essential Facilities: Toward a Schumpeterian Post-Chicago Approach,” Paper presented at the George Mason University conference on Dynamic Competition and Antitrust, December 16-17, 1998, Washington, DC.

1.2. Antitrust policy: history.

Thomas J. DiLorenzo and Jack C. High, “Antitrust and Competition, Historically Considered,” Economic Inquiry 26(3): 423-35 (July 1988).

Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself. Basic Books, 1978, chapters 1, 2, and 3.

Thomas W. Hazlett, “The Legislative History of the Sherman Act Re-examined,” Economic Inquiry 30(2): 263-76 (April 1992).

Christopher Grandy, “Original Intent and the Sherman Antitrust Act: A Re-examination of the Consumer-Welfare Hypothesis,” Journal of Economic History 53(2): 359-76 (June 1993).

Coleen A. Dunlavy, “Why Did American Business Get So Big?” Audacity 2(3): 42-49 (Spring 1994). (On reserve.)

Alfred D. Chandler, Jr., The Visible Hand: the Managerial Revolution in American Business. Cambridge: Harvard University Press, 1977.

George Bittlingmayer, “Did Antitrust Policy Cause the Great Merger Wave?” Journal of Law and Economics 28: 77-118 (April 1985), reprinted in Fred S. McChesney and William F. Shughart II, eds., The Causes and Consequences of Antitrust: the Public Choice Perspective. Chicago: University of Chicago Press, 1995, pp. 127-145. (On reserve.)

Margaret Levenstein, “Mass Production Conquers the Pool: Firm Organization and the Nature of Competition in the Nineteenth Century,” Journal of Economic History 55(3): 575-611 (September 1995).

1.3. Issues in antitrust policy.

1.3.1. Collusion and oligopoly.

Viscusi, et al., chapter 5.

Posner, Antitrust Law, chapters 4 and 5.

Bork, Antitrust Paradox, chapter 8.

Richard Schmalensee, “Agreements Between Competitors,” in Thomas M. Jorde and David J. Teece, eds., Antitrust, Innovation, and Competitiveness. New York: Oxford University Press, 1992, pp. 98-118 (On reserve.)

David J. Teece, “Information Sharing, Innovation and Antitrust,” Antitrust Law Journal 2(2): 65 (February 1994).

1.3.2. Mergers and market definition.

Viscusi, et al., chapter 7.

U. S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines.

Oliver E. Williamson, “Economies as an Antitrust Defense: The Welfare Tradeoffs,” American Economic Review 58: 18-36 (March 1968), reprinted in idem, Antitrust Economics. Oxford: Basil Blackwell, 1987. (On reserve.)

Symposium on Horizontal Mergers and Antitrust, Journal of Economic Perspectives 1(2): 3-54 ( Fall 1987).

Posner, Antitrust Law, chapter 6.

Bork, Antitrust Paradox, chapters 9 and 10.
Lawrence J. White, “Wanted: A Market Definition Paradigm for Monopolization,” Working Paper #CLB-99-002 Center for Law and Business, New York University, February 1999.

1.3.3. Predatory pricing and price discrimination.

Viscusi, et al., chapter 9.

Bork, Antitrust Paradox, chapter 20.

John S. McGee, “Predatory Price Cutting: The Standard Oil (N.J.) Case,” Journal of Law and Economics 1: 137-169 (October 1958).

Lester G. Telser, “Cutthroat Competition and the Long Purse,” Journal of Law and Economics 9: 259-277 (October 1966).

Phillip Areeda and Donald F. Turner, “Predatory Pricing and Related Practices under Section 2 of the Sherman Act,” Harvard Law Review 88: 697-733 (February 1975).

Frank H. Easterbrook, “Predatory Strategies and Counterstrategies,” University of Chicago Law Review 48: 263-377 (Spring 1981)

Andrew R. Dick. “Learning by Doing and Dumping in the Semiconductor Industry,” Journal of Law and Economics 34(1): 133-59 (April 1991).

James C. Miller III and Paul A. Pautler, “Predation: the Changing View in Economics and the Law,” Journal of Law and Economics 28: 495-502 (May 1985).

Alvin K. Klevorick, “The Current State of the Law and Economics of Predatory Pricing,” American Economic Review 83(2): 162-67 (May 1993).

Donald J. Boudreaux, Kenneth G. Elzinga, and David E. Mills, “The Supreme Court's Predation Odyssey: From Fruit Pies to Cigarettes,” Supreme Court Economic Review 4 (October 1995). (On reserve.)

Daniel J. Gifford, “Predatory Pricing Analysis in the Supreme Court,” Antitrust Bulletin 39(2): 431-483 (Summer 1994).

1.3.4. Vertical antitrust policy: general considerations.

Viscusi, et al., chapter 8.

Ronald Coase, “Industrial Organization: A Proposal for Research,” in V. R. Fuchs, ed., Policy Issues and Research Opportunities in Industrial Organization. New York: NBER, 1972.

Oliver E. Williamson, “Assessing Vertical Market Restrictions: Antitrust Ramifications of the Transaction Cost Approach,” University of Pennsylvania Law Review 127: 953-993 (April 1979), reprinted in idem, Antitrust Economics. Oxford: Basil Blackwell, 1987. (On reserve in both forms.)

Steven C. Salop, “Exclusionary Vertical Restraints Law: Has Economics Mattered?” American Economic Review 83(2): 168-72 (May 1993).
Alan J. Meese, “Price Theory and Vertical Restraints: A Misunderstood Relation,” UCLA Law Review 45: 143 (October, 1997).

1.3.5. Tying and leveraging.

Bork, Antitrust Paradox, chapter 19.

Posner, Antitrust Law, chapter 8.

Aaron Director and Edward Levi, “Law and the Future: Trade Regulation,” Northwestern University Law Review 512: 81 (1956).
Ward S. Bowman, “Tying Arrangements and the Leverage Problem,” Yale Law Journal 67: 19 (1957).

R. Kenney and Benjamin Klein, “The Economics of Block Booking,” Journal of Law and Economics 26: 497-540 (October 1983).

Benjamin Klein and Lester F. Saft, “The Law and Economics of Franchise Tying Contracts,” Journal of Law and Economics 28(2): 345-61 (May 1985).

Carl Shapiro and David J. Teece, “Systems Competition and Aftermarkets: An Economic Analysis of Kodak,” Antitrust Bulletin 39(1): 135-62 (Spring 1994).

John Lunn, “Tie-in Sales and the Diffusion of New Technology,” Journal of Institutional and Theoretical Economics 146(2): 249-60 (June 1990).
Louis Kaplow, “Extension of Monopoly Power Through Leveraging,” Columbia Law Review 85: 515 (1985).

1.3.6. Exclusive dealing and boycotts.

Scott E. Masten and Edward A. Snyder, “United States versus United Shoe Machinery Corporation: On the Merits,” Journal of Law and Economics 36(1): 33-70 (Part 1, April 1993).

Bork, Antitrust Paradox, chapters 15 and 17.

Posner, Antitrust Law, pp. 201-211.

1.3.7. Resale price maintenance.

Bork, Antitrust Paradox, chapter 14.

Posner, Antitrust Law, pp. 147-167.

Lester G. Telser, “Why Should Manufacturers Want Fair Trade?” Journal of Law and Economics 3: 86-105 (1960).

Lester G. Telser, “Why Should Manufacturers Want Fair Trade II?” Journal of Law and Economics 33(2): 409-17 (October 1990).

Andrew N. Kleit, “Efficiencies without Economists: The Early Years of Resale Price Maintenance,” Southern Economic Journal 59(4): 597-619 (April 1993).

William Breit, “Resale Price Maintenance: What Do Economists Know and When Did They Know It?” Journal of Institutional and Theoretical Economics 147(1): 72-90 (March 1991).

Howard P. Marvel and Stephen McCafferty, “The Welfare Effects of Resale Price Maintenance,” Journal of Law and Economics 28(2): 363-379 (May 1985).

1.4. Criticisms and reform of antitrust.

1.4.1. Antitrust, innovation, and dynamic competition.

Dominick T. Armentano, Antitrust and Monopoly: Anatomy of a Policy Failure. New York: John Wiley, 1982. (2nd edition, 1990.) (On reserve.)

Thomas M. Jorde and David J. Teece, “Innovation, Cooperation, and Antitrust,” in idem, eds., Antitrust, Innovation, and Competitiveness. New York: Oxford University Press, 1992, pp. 47-81. (On reserve.)

William J. Baumol and Janusz Ordover, “Antitrust: Sources of Dynamic and Static Inefficiencies?” in Thomas M. Jorde and David J. Teece, eds., Antitrust, Innovation, and Competitiveness. New York: Oxford University Press, 1992, pp. 82-97. (On reserve.)

Franklin M. Fisher, John J. McGowan, and Joan E. Greenwood, Folded, Spindled, and Mutilated: Economic Analysis and U. S. v. IBM. Cambridge: MIT Press, 1983, especially pp. 19-41. (On reserve.)

1.4.2. Antitrust and rent-seeking behavior.

William J Baumol and Janusz Ordover, “Use of Antitrust to Subvert Competition,” Journal of Law and Economics 28(2): 247-65 (May 1985).

Fred S. McChesney and William F. Shughart II, eds., The Causes and Consequences of Antitrust: the Public Choice Perspective. Chicago: University of Chicago Press, 1995. (On reserve.)

Robert J. MacKay, James C. Miller III, and Bruce Yandle, Public Choice and Regulation: A View from Inside the FTC. Stanford: Hoover Institution, 1987.

William Breit and Kenneth G. Elzinga, “Private Antitrust Enforcement: the New Learning,” Journal of Law and Economics 28(2): 405-444 (May 1985).

Frank H. Easterbrook, “Detrebling Antitrust Damages,” Journal of Law and Economics 28(2): 445-468 (May 1985).

1.4.3. Modern antitrust enforcement.

Mark J. Roe, “From Antitrust to Corporation Governance? The Corporation and the Law: 1959-1994,” in Carl Kaysen, ed., The American Corporation Today. New York : Oxford University Press, 1996. (On reserve.)
Lawrence J. White, “Present at the Beginning of a New Era for Antitrust: Reflections on 1982-1983,” Working Paper #CLB-99-005, Center for Law and Business, New York University, March 1999.
William E. Kovacic and Carl Shapiro, “Antitrust Policy: A Century of Economic and Legal Thinking,” Journal of Economic Perspectives, forthcoming.

2. Innovation and intellectual property rights.

Sir Arnold Plant, “The Economic Theory Concerning Patents for Inventions,” Economica 1: 167-195 (February 1934).

Kenneth J. Arrow, “Economic Welfare and the Allocation of Resources to Invention,” in Richard R. Nelson, ed., The Rate and Direction of Inventive Activity: Economic and Social Factors. Princeton: Princeton University Press, 1962.

Harold Demsetz, “Information and Efficiency: Another Viewpoint,” Journal of Law and Economics 12: 1-22 (1969).

Roberto Mazzoleni and Richard R. Nelson, “Economic Theories about the Benefits and Costs of Patents,” Journal of Economic Issues 32(4): 1031-52 (December 1998).
Richard C. Levin, Alvin K. Klevorick, Richard R. Nelson, and Sidney G. Winter, “Appropriating the Returns from Industrial R&D,” Brookings Papers on Economic Activity 3: 783-831 (1987).

Alvin K. Klevorick, Richard C. Levin, Richard R. Nelson, and Sidney G. Winter, “On The Sources And Significance of Interindustry Differences in Technological Opportunities,” Research Policy 24(2): 185-205 (1995).

Robert P. Merges and Richard R. Nelson, “On the Complex Economics of Patent Scope,” Columbia Law Review 90(4): 839-916 (1990).

Robert P. Merges and Richard R. Nelson, “Market Structure and Technical Advance: the Role of Patent Scope Decisions,” in Thomas M. Jorde and David J. Teece, eds., Antitrust, Innovation, and Competitiveness. New York: Oxford University Press, 1992, pp. 185-234. (On reserve.)

Harold Scott Wallace, “Competition and the Legal Environment: Intellectual Property Rights in the Early American Film Industry,” working paper, University of Connecticut.

3. Economic Regulation.

3.1. Regulation in history.

Viscusi, et al., chapter 10.

Richard H. K. Vietor, Contrived Competition: Regulation and Deregulation in America. Cambridge: The Belknap Press, 1994. (On reserve.)
Richard F. Hirsh, “Regulation and Technology in the Electric Utility Industry: A Historical Analysis of Interdependence and Change,” in Jack High, ed., Regulation: Economic Theory and History, Ann Arbor: University of Michigan Press, 1991. (On reserve.)
Gabriel Kolko, Railroads and Regulation, 1877-1916. Princeton: Princeton University Press, 1965.

Claudia Goldin and Gary D. Libecap, eds., The Regulated Economy: A Historical Approach to Political Economy. Chicago: University of Chicago Press, 1994. (On reserve.)

3.2. Regulation in theory.

Jacob Murray Edelman, The Symbolic Uses of Politics. Urbana: University of Illinois Press, 1964. (On reserve.)

George J. Stigler, “The Theory of Economic Regulation,” Bell Journal of Economics 2(1): 3-21 (Spring 1971).

Richard A. Posner, “Theories of Economic Regulation,” Bell Journal of Economics 5(2): 335-358 (Autumn 1974).

Sam Peltzman, “Toward a More General Theory of Regulation,” Journal of Law and Economics 19: 211-40 (1976).

Robert D. Tollison, “Regulation and Interest Groups,” in Jack C. High, ed., Regulation: Economic Theory and History. Ann Arbor: University of Michigan Press, 1991. (On reserve.)

Paul Joskow and Nancy Rose, “The Effects of Economic Regulation,” in Richard Schmalensee and Robert Willig, eds., Handbook of Industrial Organization. Amsterdam: North Holland, Volume 2, 1989, pp. 1253-1287. (In reference section, main floor of Babbidge Library)

3.3. “Natural monopoly” and rate regulation.

Viscusi, et al., chapters 11 and 12.

Alfred Kahn, The Economics of Regulation: Principles and Institutions. New York: Wiley, 1970.
Harvey Averch and Leland Johnson, “Behavior of the Firm under Regulatory Constraint,” American Economic Review 52(5): 1052-1069 (December 1962).

William J. Baumol, “Contestable Markets: An Uprising in the Theory of Industry Structure,” American Economic Review 72(1): 1-15 (March 1982).

3.4. Franchise bidding.

· Viscusi, et al., chapter 13.

Harold Demsetz, “Why Regulate Utilities?” Journal of Law and Economics 11: 55-66 (April 1968).

Oliver E. Williamson, “Franchise Bidding for Natural Monopolies — In General and with Respect to CATV,” Bell Journal of Economics 7: 73-104 (Spring 1976).

Victor Goldberg, “Regulation and Administered Contracts,” Bell Journal of Economics 7(2): 426-452 (1976).

3.5. Multiproduct monopolies.

· Viscusi, et al., chapter 15.

Richard A. Posner, “Taxation by Regulation,” Bell Journal of Economics 2(1): 22-50 (Spring 1971).

Elizabeth E. Bailey and Ann F. Friedlaender, “Market Structure and Multiproduct Industries,” Journal of Economic Literature 20(3): 1024-48 (September 1982).

3.6 Deregulation.

· Paul Joskow, “Introducing Competition in Network Industries: From Hierarchies to Markets in Electricity,” Industrial and Corporate Change 5(2): 341-82 (1996).

· Paul Joskow, “Restructuring, Competition and Regulatory Reform in the U.S. Electricity Sector,” Journal of Economic Perspectives 11(3): 119-138 (Summer 1997).

· Matt White, “Power Struggles: Explaining Deregulatory Reforms in Electricity Markets,” Brookings Papers on Economic Activity: Microeconomics (1996), pages 201-250.

· Vernon Smith, “Regulatory Reform in the Electric Power Industry,” Regulation 19(1) (1996).

· Robert W. Crandall, “Halfway Home: U.S. Telecommunications (De)Regulation in the 1970s and 1980s,” in Jack C. High, ed., Regulation: Economic Theory and History. Ann Arbor: University of Michigan Press, 1991. (On reserve.)

· Lawrence J. White, “The Deregulation of the Telephone Industry: The Lessons from the U.S. Railroad Deregulation Experience,” Working Paper #CLB-98-016 Center for Law and Business, New York University, February 1999.