the cyclical behavior of the department of justice s antitrust enforcement activity abstract we study the cyclical behavior of antitrust enforcement as measured by the number of cases initiated by the us department of justice the key result is that antitrust case activity is countercyclical this finding is robust across alternate indicators of economic activity which include stock prices corporate profits and business cycles and across different types of cases the finding of countercyclical case activity does not appear to lend support to interest group theories that predict greater regulatory protection towards producers during economic contractions one interpretation of our result would be that antitrust violations tend to increase during economic downturns leading to an increase in the number of cases initiated the broad implication being that the antitrust division primarily acts as an antitrust law enforcement agency our results show that politics as measured by the party of the president and the republican versus democrat composition of the house and senate does not have a clear impact on case activity finally the number of cases initiated are significantly affected by the extent of funding

an econometric analysis of the european commission s merger decisions abstract using a sample of 96 mergers notified to the european commission and logit regression techniques we analyse the commission s decision process we find that the probability of a phase 2 investigation and of a prohibition of the merger increases with the parties market shares the probabilities increase also when the commission finds high entry barriers or that the post merger market structure is conducive to collusion we do not find significant effects of political variables such as the nationality of the merging firms

compensation and productive efficiency in partnerships evidence from medical groups practice relatively little is known about the behavior and performance of firms organized as partnerships in this paper we attempt to fill that gap by developing and testing a model of the effect of alternative compensation arrangements on productive efficiency in medical group practices the technique employed is maximum likelihood production frontier estimation we provide a simple behavioral model of the determination of productive efficiency and a new interpretation of the economic measure of technical efficiency we derive a behavioral production function that relates production to individual responses to incentives and we indicate the impossibility of recovering the parameters of the production technology from observed behavior overall the empirical results indicate that incentives do affect productivity a larger number of members in a group decreases productivity while greater average experience leads to greater productivity

lessons from the united states s antitrust history abstract the united states s antitrust policy spans more than 100 years for most of its history the united states has had the toughest antitrust laws and enforcement policies of any country in the world a shift to a more permissive attitude with regard to antitrust matters has occurred in recent years however this paper traces the changes in antitrust policy that have occurred and the concurrent shifts in thinking among economists on antitrust questions following this review the paper offers a critical appraisal of both the economic underpinning of the new learnings on antitrust matters and the changes in antitrust policy that have accompanied them it closes with a discussion of the implications of the analysis for european antitrust competition policy

a study of cartel stability the joint executive committee 1880 1886 this article employs weekly time series data on the joint executive committee railroad cartel from 1880 to 1886 to test empirically the proposition that observed prices reflected switches from collusive to noncooperative behavior an equilibrium model of dynamic oligopoly with asymmetric firms together with explicit functional form assumptions about costs and demand determines the estimating equations and stochastic structure of the econometric model the hypothesis that no switch took place so that price and quantity movements were solely attributable to exogenous shifts in the demand and cost functions is then tested against this alternative and rejected

strategic pricing models and interpretation of price war data abstract price wars cartel breakdowns and other seemingly disequilibrium pricing phenomena are examined questions of interest include when do breakdowns occur how long do they last what determines their severity and are they characterized by increased cross sectional price dispersion and or temporal price volatility the first half of the paper explains how the choice of punishment strategy the specification of the stochastic shocks to the system and the assumptions regarding observability determine the pricing dynamics implicit in several theoretical price war models theories are classified into imperfect monitoring models in which players actions cannot be observed learning models in which structural parameters are unknown to the players and cyclical models in which observability is perfect but business cycles affect the difficulty of colluding the second half in contrast examines data on prices actually set by firms in industries which are subject to periodic wars when the models are confronted with the data we can see how well oligopoly theory explains the behavior of the firms in these industries the object of the exercise is not to pick a winner instead the role of industry characteristics in determining pricing dynamics is assessed and the reasons why simple models may fail to explain complex pricing patterns are examined finally directions for future research are suggested by the empirical regularities which are uncovered

theories of cartel stability and the joint executive committee this article reexamines the experience of the joint executive committee an 1880s railroad cartel to assess the applicability of the green and porter 1984 and rotemberg and saloner 1986 theories of price wars after discussing necessary modifications to the theories i estimate a number of dynamic models to explore the causes of price wars the cyclical nature of pricing and the possibility that secret price cuts may have been given the estimates provide some support for the predictions of the first theory

almost stochastic dominance and stocks for the long run abstract the geometric mean argument and the recently developed almost stochastic dominance criterion have been employed to make the case for stocks for the long run we show that almost stochastic dominance and the geometric mean argument do not necessarily support long run investment in equities in fact for standard preferences bonds may be preferred to stocks for the long run while stocks are preferred for shorter horizons

the spillover effect of antitrust enforcement we address the question of how the threat of antitrust enforcement spills over from one industrial submarket to another we build a formal model describing the technology through which an initial antitrust indictment can reveal evidence of additional infractions in the same industry our approach is organized around the belief that the flow of information on antitrust violations is closely linked to commodity flows as it turns out our method proves able to explain the differential response of highway construction cartels in various states to recent changes in the severity of antitrust sanctions

putting risk in its proper place this paper examines preferences toward particular classes of lottery pairs we show how such concepts as prudence and temperance can be fully characterized by a preference relation over these lotteries if preferences are defined in an expected utility framework with differentiable utility the direction of preference for a particular class of lottery pairs is equivalent to signing the nth derivative of the utility function what makes our characterization appealing is its simplicity which seems particularly amenable to experimentation

a general index of absolute risk attitude many results involving expected utility theory call upon the notions of absolute risk aversion prudence and or temperance this paper exploits a representation of the friedman savage utility premium friedman m l j savage 1948 the utility analysis of choices involving risk j political econom 56 4 279 304 to give a general foundation for such coefficients and for their higher order extensions

collusive pricing with capacity constraints in the presence of demand uncertainty we explore the response of collusive prices to changing demand conditions when firms operate under capacity constraints in the presence of demand uncertainty we find support for the conventional view that periods of low demand lead through the emergence of excess capacity to a breakdown of collusive pricing we also find that the nature of price wars depends on the degree of excess capacity in the industry while small amounts of excess capacity can lead firms to engage in mild price wars characterized by uniform price reductions and market share stability more severe price wars characterized by price undercutting and market share instability can emerge if excess capacity is sufficiently great finally our results lend support to the view that market share instability is a symptom of ineffective collusion

when are cartels stable contracts why do some industry cartels survive for decades while others are quickly undermined by price wars and entry variation in cartels longevity can be explained by differences in their costs of self enforcement and service value to members analyzing legal cartel contracts formed under the webb pomerene export trade act i find that longer lived cartels tended to export to small buyers to have wide industry coverage to operate in periods of stable prices and growing demand and to sell under side agreements with foreign competitors contracts in which the cartel centralized its control through a common sales agency tended to be more stable however cartels usually grew less stable with age and when there was a recent and long history of cartelization in the industry finally cartels whose primary rationale was to fix price tended to be particularly unstable because these contracts invited fringe competition and entry

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

internal cartel stability with time dependent detection probabilities abstract to account for the illegal nature of price fixing agreements per period detection probabilities that can vary over time are introduced in a dynamic oligopoly the resulting iccs for internal cartel stability indicate that for discount factors up to 10 per period detection probabilities of 5 are needed to reduce the number of cartel members by 50 for the special case of stationary supergames with constant per period detection probabilities p elegant rules emerge internal cartel stability requires the discount factor to increase with 100 p 1 p percent while a fixed fine of 100 1 p p percent of incremental cartel profits is required for making the icc always binding

the consequences of the us doj s antitrust activities a macroeconomic perspective do the antitrust law enforcement activities of the us department of justice act as exogenous technology shocks or as markup shocks limiting market power and promoting economic growth we analyze annual time series data from 1947 to 2003 on three measures of federal antitrust intervention the ratio of the antitrust division s budgetary expenditures to gdp as well as the numbers of civil and criminal antitrust cases instituted we find that changes in the levels of these policy variables act like negative technology shocks and that the negative effects are transitory antitrust policy generates no subsequent offsetting increases in productivity

third degree stochastic dominance here f x and g x are less than cumulative probability distributionis where x is a continuous or discrete random variable representing the outcome of a prospect the closed interval a b is the sample space of both prospects the integral shown in rule 2 and those shown throughout the paper are stieltjes integrals recall that the stieltjes integral fb f x dg x exists if one of the functions f and g is continuous and the other has finite variation in a b let d1 d2 and d3 be three sets of utility functions x d1 is the set containing all utility functions with 4 x and 1 x continuous and 41 x 0 for all xe a b d2 is the set with x 1 x 2 x continuous and q j x 0 02 x o for all xc a b d3 is the set with x 1 x 2 x 3 x continuous and 1 x 04 2 x o o for all xc a b here 1 x denotes the ith derivative of x hadar and russell proved that rule 1 is valid for all cd1 and rutle 2 is valid for all ed2 the authors point out that the set of probability distributions that can be ordered by means of second degree stochastic dominance is in general larger than that which can be ordered by means of first degree stochastic dominance note that in rule 2 they assume that x is not only an increasing function of x but also exhibits weak global risk aversion a condition guaranteed by requiring the second derivative of x to be nonpositive in this paper a condition which will be called third degree stochastic dominance is considered it is based on the following assumption about the form of the utility function x from a normative point of view one expects the risk premium associated with an uncertain prospect to become smaller the greater is the individual s wealth the plausibility and implications of this assumption h ave been explored by john pratt as well as others the risk premium of an uncertain prospect is that amount by which the certainty equivalent of the prospect differs from its expected value in mathematical terms given the prospect f x with expected value a the corresponding risk premium t is obtained by solving the following equation rb

stochastic dominance and expected utility survey and analysis while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics finance agriculture statistics marketing and operations research in this survey the first second and third order stochastic dominance rules are discussed with an emphasis on the development in the area since the 1980s

stock market dispersion and unemployment abstract the sectoral shifts hypothesis advanced by lilien 1982 and davis 1987 suggests that unemployment is in part the result of resources being reallocated from declining to expanding sectors of the economy using u s data from 1931 to 1987 we test this hypothesis by constructing an index measuring the dispersion among stock prices from different industries we find that lagged values of this index significantly affect unemployment we show that the stock market dispersion index is less contaminated by aggregate demand influences than lilien s employment dispersion index which makes our test less vulnerable to the abraham and katz 1986 critique

performance pay and teachers effort productivity and grading ethics this paper presents evidence about the effect of individual monetary incentives on english and math teachers in israel teachers were rewarded with cash bonuses for improving their students performance in high school matriculation exams the main identification strategy is based on measurement error in the assignment to treatment variable that produced a randomized treatment sample the incentives led to significant improvements in test taking rates conditional pass rates and mean test scores improvements were mediated through changes in teaching methods enhanced after school teaching and increased responsiveness to students needs no evidence was found of manipulation of test scores by teachers

strategic leniency and cartel enforcement the cornerstone of cartel enforcement in the united states and elsewhere is a commitment to the lenient prosecution of early confessors a burgeoning game theoretical literature is ambiguous regarding the impacts of leniency i develop a theoretical model of cartel behavior that provides empirical predictions and moment conditions and apply the model to the complete set of indictments and information reports issued over a 20 year span statistical tests are consistent with the notion that leniency enhances deterrence and detection capabilities the results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime jel d43 l12 l13 k21 in 1993 the department of justice doj introduced a new leniency program with the intent of destabilizing existing cartels and deterring new cartels the program commits the doj to the lenient prosecution of early confessors in particular it guarantees complete amnesty from federal prosecution to the first confessor from each cartel provided that an investigation into the confes sor s cartel is not already underway it also offers discretionary penalty reductions to conspirators who confess when an investigation is already ongoing the new leniency program has become the cornerstone of cartel enforcement efforts in the united states e g scott d hammond 2004 and recently has inspired antitrust authorities in australia canada the european union japan south korea and elsewhere to introduce similar programs oecd 2002 2003 this paper tests the efficacy of the new leniency program the results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime a burgeoning game theoretical literature is ambiguous regarding the impacts of leniency a common finding is that leniency may destabilize cartels because conspirators can simultane

bonds versus stocks investors age and risk taking abstract it has become increasingly popular to advise investors to relocate their funds from a primarily stock portfolio to a primarily bond portfolio as they get older however the well known decision rules such as mean variance or stochastic dominance rules are unable to explain this common practice almost stochastic dominance asd and almost mean variance amv approaches are used to examine the dominance of stock and bond portfolios asd and amv rules unambiguously support the popular practice of advising higher stock to bond ratio for long investment horizons hence we provide an explanation to the practitioners recommendation within the expected utility paradigm

preferred by all and preferred by most decision makers almost stochastic dominance while most decision makers may prefer one uncertain prospect over another stochastic dominance rules as well as other investment criteria will not reveal this preference due to some extreme utility functions in the case of even a very small violation of these rules such strict rules relate to all utility functions in a given class including extreme ones which presumably rarely represents investors preference in this paper we establish almost stochastic dominance asd rules which formally reveal a preference for most decision makers but not for all of them the asd rules reveal that choices which probably conform with most decision makers also solve some debates e g showing as practitioners claim an asd preference for a higher proportion of stocks in the portfolio as the investment horizon increases a conclusion which is not implied by the well known stochastic dominance rules

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

the behavior of regulatory activity over the business cycle an empirical test this paper tests a prediction of the interest group theory of regulation which suggests that regulators generally will not force any one group to bear the full adjustment costs associated with variations in the business cycle that is the interest group model predicts that regulatory agencies will redistribute cyclical gains and losses by supplying more producer protection regulation during contractions and more consumer protection regulation during expansions i e regulatory activity which reduces consumer welfare will tend to be countercyclical intensifying when aggregate demand falls and abating as demand increases the empirical results show a countercyclical and statistically significant ceteris paribus relationship between federal trade commission enforcement efforts under the robinson patman act and several alternative measures of general business conditions since the robinson patman act is viewed widely as anti consumer the findings suggest that in cyclical downturns the commission moves to protect producers against losses by bringing more cases which limit the tendency for prices to fall this result may be rationalized under the view that during recessions the federal trade commission is in the business of transferring wealth from consumers either to protect small business or to bolster cartels on the other hand during business expansions the commission reduces its robinson patman case load and such a change in enforcement may serve to mitigate producer gains transferring wealth to consumers at the margin in any case the paper offers empirical support for the interest group model by providing evidence that the business cycle plays an important part in explaining the level and pattern of regulatory activity

a note on almost stochastic dominance abstract both the expected utility maximization and the hierarchy property are very important properties in stochastic dominance for almost stochastic dominance leshno and levy 2002 propose a definition and tzeng et al 2013 modified it to give another definition this note provides more information on the two definitions the former has the hierarchy property but not the expected utility maximization whereas the latter has the expected utility maximization but not the hierarchy property

antitrust public choice s antitrust legislation and enforcement has over the last few decades been increasingly informed by ever more sophisticated analysis while at the same time evidence has continued to mount that the results of antitrust remedies fall far short of the promises held out under still prevalent nirvana fallacy demsetz in journal of law and economics 12 1 1 22 1969 expectations i draw upon a recent supreme court decision as well as the results of young and shughart s public choice 2010 doi 10 1007 s11127 009 9531 y novel approach to the analysis of antitrust enforcement activities to discuss the extent to which public choice theory is vital in solving the puzzle regarding the unintended effects of antitrust public choices

state antitrust enforcement in the us and implications for small business entry and relocation this article examines the impact of the important yet little studied state level antitrust enforcement activity on entry and relocation behaviour by small us firms feinberg and husted 2011 have shown that this enforcement especially nonhorizontal cases may be viewed by potential entrants as a negative aspect of the state business climate however they did not pursue a more disaggregate analysis of small firm entry behaviour nor did they investigate different responses between manufacturing wholesaling and retailing firms another related issue is the extent to which state cases filed in tandem with federal investigations have the same impact on establishment entry as do purely independent cases these considerations are dealt with in this article the author uses annual state level data from the statistics of us business to examine entry and relocation reactions to state antitrust enforcement by firms within three small business categories 1 19 employees 20 99 employees 100 499 employees g

the impact of cyclical demand movements on collusive behavior recent work by rotemberg and saloner 1986 investigates the effect of the business cycle on optimal collusive pricing by specifying that demand is subject to i i d shocks an implication of the i i d assumption is that firms expectations on future demand are unrelated to the current level of demand we put forth a model that allows for both the level of current demand and firms expectations on future demand to change over time thus it captures two important properties of the business cycle our analysis reveals that while the gain to deviating from a collusive agreement is greatest during booms firms find it most difficult to collude during recessions as the forgone profits from inducing a price war are relatively low an implication of this effect for pricing behavior is that at the same level of demand price is lower when demand is declining than when demand is rising consistent with previous theoretical work we find that firms price countercyclically for a range of values for the discount factor however numerical simulations reveal a greater tendency for firms to price countercyclically during recessions than during booms

imperfect competition law enforcement competition policy is a subject of often heated debate competition authorities seeking to prevent or battle anticompetitive acts in complex cases to the best of their abilities regularly find themselves advised by rival economic theories and disputed empirical analyses as a consequence there is a real possibility that they may occasionally err missing true violations of competition law or finding firms liable that actually had no other intentions than good competition in this paper possible consequences of such imperfect competition law enforcement on firm strategies are considered in a simple model of collusion it is found that the incidence of anti competitive behavior increases in both types of enforcement errors type ii errors decrease expected fines while type i errors encourage industries to collude precautionary when they face the risk of a false conviction hence fallible antitrust enforcement may stifle genuine competition thus stimulating the very behavior competition policy is meant to deter when enforcement errors are non negligible competition authorities run the risk of being over zealous in the sense that welfare is best served by an authority that is selective and conscientious in its targeting of alleged anticompetitive acts