Market Power

Antitrust Enforcement

Yesterday in Econ 202, we discussed US antitrust laws and the ways that the government tries to - on the surface - promote competition.  Holman Jenkins had a nice editorial in yesterday's Wall Street Journal ($$$) on some of the practical problems associated with antitrust enforcement.  A key issue in many cases is the definition of the market.  Holman is right to sneer at some of the definitions officially put forth.  Another issue is the motivation of those brining antitrust lawsuits and the motivation of those working in the antitrust agencies.  The online content is not free, but students can still pick up copies of yesterday's Journal in Morris Hall through today.  Here's some stuff from the column:

Federal agencies have two choices when presented with a merger. They can find a "problem" -- in which case their budgets are justified and their walls fill up with scalps. Or they can find no problem. Guess which they do?

Take the Federal Trade Commission lawsuit to block a proposed merger of Office Depot and Staples, a close parallel to Sirius-XM. The two would have accounted for just 4% of the office-supply market, but 100% of the market for office supplies purchased from . . . Office Depot or Staples!

Take FTC's failed attempt to block a deal bringing Häagen-Dazs and Dreyer's under the same roof, which in a better world would forever have deprived its promoters of the respect of their peers. The agency's case was built on the premise that "superpremium" ice cream doesn't compete with, er, ice cream.

And so on, with Oracle-PeopleSoft, EchoStar-DirecTV, Blockbuster-Hollywood Video, WorldCom-Sprint, etc.

...Never mind that 15 years ago the satellite radio industry didn't exist, whereas conventional radio, sprawling across the AM and FM dials, has been around for a century and more. Motorists can listen to their iPods, CDs, cassettes and DVDs too. And don't forget the mobile broadband revolution and high-def radio revolution just around the corner. In the home, to treat XM and Sirius as an entertainment "monopolist" would make a mockery of the concept. To fuss about the distribution technology at all -- the use of satellites as opposed to terrestrial transmitters -- is utterly beside the point. The business model for both is pay radio in a universe of free radio. Neither has made a profit.

Naturally, leading the opposition is the National Association of Broadcasters. That competitors would lobby against a merger as "anticompetitive" is now accepted without a guffaw. Even one or two normally sentient commentators have fretted that if the Justice Department and Federal Communications Commission (which have joint custody) fail to challenge the merger, the nation's inventory of antitrust "principles" and "precedents" might be rendered null. But those principles and precedents are mostly bunk, the fruit of the self-interested exertions of the antitrust professionals themselves. Such whimsies and brainstorms make a poor excuse for brushing aside the rights of companies and their owners (rights that are rarely acknowledged in antitrust discussions anymore).

Econ Student Makes Front Page News

Michael Norton, a senior economics major at my university, has made the front page of the local paper:

It was never Mike Norton’s intention to write a book.

But as he sat through hour after hour of meetings on the Student Allocations Committee at Minnesota State University, taking page after page of notes about how student fee dollars are used by the dozens of student groups, he had an epiphanic moment.

“People began discussing how to get this information out (about how student fee money gets spent,” Norton said. “And I decided to turn this into a book.”

And here's where the budding economist in Mike really appears:

His most colorful damnations are reserved for the department known as Student Leadership Development and Service Learning, the folks responsible for the annual spring concert, the annual big-name lecture, homecoming activities, Greek organizations, the Campus Kitchens project that feeds homeless people with unused cafeteria food, and others.

Says Norton, “SLD&SL has done an absolutely horrible job of getting students to come to their activities, when most students are concerned about the cost of college.”

Instead of a bureaucracy to handle student activities, Norton says, there should be none. Students themselves, he believes, would figure out how to have fun themselves.

“There’s 14,000 students on this campus,” he said. “And if we can’t find something to do, then we've failed.”

In his book, Norton writes, “Essentially, SLD&SL is spending a half million dollars of student money with the intent of someday everyone on campus coming together, hand in hand, and singing ‘Kumbaya’ in unison.’”

Well played, Mike.  Well played.

Update:  I noticed I had a link to a review of Mike's book in the first paragraph above.  I have changed the link to direct it to the article.

We Sold Our Soul for... Public Financing?

From the St. Louis Post-Dispatch:

St. Louis University, a Jesuit school proud of its Catholic heritage, celebrated a legal victory last week that affirmed it is not controlled by the Catholic church or by its Catholic beliefs.

The Missouri Supreme Court agreed with the school in handing down a decision that the city of St. Louis did not violate state and federal constitutions by granting the university $8 million in tax increment financing for its new arena.

Opponents of the $80 million arena sued the school in 2004, halting construction.

The Missouri Constitution prohibits public funding to support any "… college, university, or other institution of learning controlled by any religious creed, church or sectarian denomination whatever."

The debate came down to two words: "control" and "creed." Does the guiding mission of a Catholic university align with the specific system of religious faith espoused by the Catholic church? And if so, does that system of faith control the actions of the university?

In a 6-1 decision, the court said SLU "is not controlled by a religious creed."

...As the suit, filed by the Masonic Temple Association, made its way to the Missouri Supreme Court, SLU argued that it was not controlled by the Catholic church, or even by the ideals of the Society of Jesus (or Jesuits), but by its mostly lay board of trustees.

In its Supreme Court brief, SLU said it  "… is not now owned or controlled by the Society of Jesus."

I realize that the title of the post is snarky.  SLU did not dump its Jesuit tradition and it did not move to the secular side of life to get TIF for a new arena.  SLU still has its Jesuit tradition, but it is much more of a lay campus.  Most students are not Jesuit and neither is the board of directors. Instead, this lawsuit involved the separation of church and state.  I don't know why the plaintiffs - folks at the Masonic Temple and other property owners in the area - filed this lawsuit, but since lawsuits aren't cheap, I'm skeptical that altruism was a motive. 

Now whether the politicians in St. Louis (or any other town) should use public money for sports areans as a redevolpment tool:  that's another post for another day.
 

 

A Modified Peltzman Effect?

In response to my earlier post on the Peltzman Effect, "Grays on Trays" (i.e. John LaPlante aka Policy Guy) writes:

Ride a bike or motorcycle, and you'll find that it's hard to make a corner and stand upright if you're going very, very slowly.

You might think, on a snowboard, that the thing that a novice needs to do is to go very slowly, and on very flat ground.

Wrong! Both situations dispose a novice to the nasty experience that we call "catching an edge," which results in either a "butt plant" or a "face plant," a slam to the ground.

So how to avoid catching an edge AND deal with the fear of going too fast? That's where the protective gear comes in. It just may give the snowboarder the extra confidence required to travel a little bit faster, on a little steeper terrain, and thus enter a situation wherein the probability of catching an edge is REDUCED.

I probably have not explained this as well as I should have, but the phenomenon is real. I've lived it. Gear that in one situation might lead to excessive risk taking can lead to "risk taking" that is actually more prudent than the alternative.

Perhaps we can call it the GraysOnTrays (or LaPlante) effect, but the Peltzman Effect seems to be at play in some way shape or form: wearing safety equipment changes the behavior of people.  But in this case, the snowboarder is looser and more relaxed when padded up, leading to more safety rather than less. 

In my case, the PowerMom has remarked that I look stiff when I try to scoot around on my rollerblades.  I'm padded to the gills - although I could try the bubble wrap to protect the PowerBooty*.  Part of the stiffness is that I have chronic lower back pain.  Part is fear of getting hurt, I admit.  But how do I gain the confidence to loosen up**, short of wrapping myself in Sertas?

*I know I'd look ridiculous wearing bubble wrap.  But I'm 42 years old, married, and have two kids.  Who do I have to impress?

**My first job was working as a bus boy at Bishop's Cafeteria in downtown Sioux City.  We used trays to carry the dishes from the floor to the dishroom.  The trays had very short sides and it seemed that the piles of dishes would easily crash to the floor.  So I started out carrying the full trays very cautiously.  My boss told me to loosen up and he showed me how I could move when I was relaxed.  He took a tray full of dishes and spun around, shoving the tray of dishes back and forth.  Nothing budged.  I relaxed after that.

Single Square Sheryl

From BBC News:

(Sheryl) Crow has suggested using "only one square per restroom visit, except, of course, on those pesky occasions where two to three could be required".

Ms. Crow wants to save the environment by limiting the amount of toilet paper people use.  Wow.  It's hard to take this seriously, but I cannot resist. 

What of the monitoring problems associated with such a ban?   How much will a ban cost and how big are the benefits?  If I'm using a double roll, do I only get to use half a square?  How will the potty police monitor whether I've used one or two squares? Will this give Charmin etc. an incentive to make bigger squares?  This big?  How does she propose controlling for those unavoidable accidents where some unfortunate clod gets a little on his hands and has to use potentially-environment-harming soaps to wash himself off?  If I've got the runs (sorry for the imagery), do I get a mulligan?

Tenure and Trade

Don Boudreaux has a nice post commenting on those arguments raised by some that tenured professors should not argue for free trade because they have virtual lifetime employment security.  Professor Boudreaux is exactly correct that arguments should be evaluated on their merits.  I want to add something to the discussion.

The vast majority of professors do not start in academia as tenured professors.  Most start as untenured professors who must show their worthiness in various areas - teaching, research, collegiality - to obtain that tenure. 

But suppose an untenured professor makes an argument for free trade based on the usual arguments.  Once the professor gets tenure, the argument is unchanged.  The only thing that has changed is the professor's job status.  Why should his argument carry less weight?

The Eyes Have It

Today's Los Angeles Times has an article on exercises and technology which are helping baseball players see the ball better.  A sample:

The device is a high-speed pitching machine that fires specially marked tennis balls at speeds up to 155 mph. Players try to read the markings as the ball flies by, an exercise intended to improve both focus and concentration. The Kansas City Royals, Seattle Mariners, Chicago Cubs, Cleveland Indians and the Olympic champion U.S. women's softball team have experimented with the ocular machine.

Another promising advance is the amber-tinted contact lens. Baltimore's Brian Roberts, Dodgers minor leaguer James Loney and the White Sox's A.J. Pierzynski are among dozens of players who have experimented with the lenses. They are designed to filter out specific wavelengths of light, cutting down on glare and making the ball appear more clearly.

Update:  one of my first responses was that this is a product of improved technology, but also of free agency as well.  But then I remembered Rottenberg's Invariance Hypothesis (see here as well). 

The benefits from the performance enhancements would likely exist regardless of whether players had the right to free agency.  Fans want to watch play of the highest quality and are willing to pay for higher levels of absolute quality, all else equal.  So the performance enhancers create extra quality and, therefore, extra revenue generated by the player.  The question is who lays claim to the increased revenue?

Free agency gives players a right over where they play and, indirectly a claim to revenue generated by his play.  The reserve rule gives that right and the claim to revenue to teams.  So under the reserve rule, teams would end up largely paying for enhancements.  Under free agency, players end up paying for them. 

The Tiger Spring Game

The Missouri Tiger offense, surprise surprise, dominated the Black and Gold game yesterday at Faurot Field in god's country.  The biggest news I can see from the news reports (see here and here) is that Chase Patton will be a fine back-up at quarterback, something that will give some insurance to Gary Pinkel and some peace of mind to Tiger fans.  Since Coach Pinkel has some insurance at QB, is he going to take more chances with starting QB Daniel?  Moral hazard says the chances are better.  Whatever the case, the current mood is definitely up in Columbia.

But there are always the wild cards (from the Post-Dispatch article above).

Patton said his attitude about football has changed in recent months and that seems to be a trend on the team. Many players said Missouri has the leadership and the attitude to be the team that a lot of people thought it might be a year ago. Several players said last season there was fear about uncharted territory after starting 6-0. When the Tigers stumbled to the finish, the negativity that has haunted the team throughout Pinkel's tenure returned.

"Some of the bad apples that were on the team are now off the team," receiver Jared Perry said. "There was negativity and talking and stuff. Now, we know what we've got to do and we know what happened last year and what we can't do."

Players will get hurt.  It happens to all teams.  As I wrote recently, when Mizzou lost Brian Smith last year, the defense lost its mojo and never got it back.  Missouri does not have that type of impact player on the defense and other than at tailback, the offense has a lot of depth at all skill positions.  So, at least from the glasses of April, Mizzou looks to be able to take a hit somewhere that won't cause too much disruption.

Yes, yes.  I know that Chase Daniel is the key cog.  Losing him will hurt more than losing any other player, but the emergence of Patton, as mentioned above, provides insurance.

And new bad apples will appear.  The key will be the team leadership needed to nip the rotten fruit in the bud. 

In any case, I'm a cautious individual.  You tend to get that way when you cheer for the Cubs and the Tigers.  You tend to get that way when you watch the kicked ball game live.  You tend to get that way when you watch the Cubs try to win a NLCS-clinching game.  You tend to get that way when you watch Tyus Edney go the length of the court (see the entry on "The Shot") with 4.2 seconds left on the clock. 

But what the heck:  let's bring on the season.

The Anti-Scott Boras Rule

Major League Baseball's new collective bargaining agreement has a rule that draft picks must sign by August 15th.  So, for those of you who like to look around you and see the world, former Missouri pitcher Max Scherzer, and Scott Boras client, is the last of a breed - probably.

Scherzer, 22, has until the end of May to sign with the Diamondbacks or he’ll re-enter the draft, which some believe is becoming the most likely outcome for the righthander. A few years ago, shortstop Stephen Drew – J.D. Drew’s brother — was a first-round pick who signed with an independent ball club. A few minutes before he re-entered the draft, the Diamondbacks worked out a deal with their first-round pick. Last year, pitcher Luke Hochevar was so thrilled with his 40th-overall selection in 2005 that he signed with Fort Worth, re-entered the draft and became the first overall pick by Kansas City in 2006.

Those two players share this in common: They were Boras clients, too.

But baseball has moved recently to put the kibosh on this draft dynamic, which is most publicly employed by Boras. The new Collective Bargaining Agreement, which was announced here in St. Louis during the World Series, calls for an Aug. 15 deadline for players to sign. (Even the threat of losing that high draft pick has been diminished by the new CBA, which promises a team a nearly identical pick in compensation for an unsigned draftee.) Coming just before the school year starts and late in the independent league season it is expected to lessen the leverage a drafted player has. Teams either sign the player by that deadline or not. No more dawdling. No more lengthy delays. No more signing with independent clubs to force the issue.

One of the factors that determines how good a negotiator is at getting what he wants is the willingness and ability to walk away from a deal.  Scott Boras' clients have this quality, which begs the following question:  does Boras instill this quality in his clients or do players with this quality use Boras' services?  Or is it some combination of the two qualities.  Whatever the case, we might as well call this new rule in the baseball CBA the Scott Boras Rule.

Escaping the Hood

Jeremy Maclin sort of reminds me of Michael Oher, the Ole' Miss left tackle and the subject of Michael Lewis' The Blind Side.

For the past 10 years, Cindy and Jeff Parres have been Maclin's stabilizing force outside of football. They made him feel safe from a tumultuous home life. They taught him life lessons. They gave him an opportunity to go to college and a chance to succeed. They opened their hearts to him, and when Maclin's mother decided she couldn't provide adequate care, they opened their home.

"I thank God for them," Maclin said. "I don't know that I would be here. Sometimes, I sit back, look at everything and know that I came a long way. I think I deserve every bit of it. I think I've been through a lot. It's amazing, basically. This experience, and I haven't even experienced it yet, I haven't even played football yet. But it's going to be a fun ride, I can tell you that."

Maclin doesn't know much about his father, only that he had multiple kids by multiple mothers. That made older brother Andre the father figure for Jeremy, and Andre did his best to act as a buffer between the kids and their often-troubled mother. Though Cleo Maclin never physically abused any of her sons, her verbal abuse and personal problems chased the three Maclin brothers out of the house, sometimes for days at a time.

"Ever since I was born, my mom has always kinda had a drinking problem," Jeremy said. "I was a little kid, so I didn't want to see my mom like that."