Person:

Kaplow, Louis

Market definition and market power are central features of competition law and practice but pose serious challenges. On one hand, market definition suffers decisive logical infirmities that render it infeasible, unnecessary, and counterproductive, and the practice of stating market power requirements as market share threshold tests is incoherent as a matter of empirics and policy. On the other hand, market power is often probative of the desirability of liability, yet the typically assumed functional relationship is unexplored and often implausible. These latter deficiencies are addressed through a ground-up analysis of the channels by which market power can be relevant. It is important to explicitly and simultaneously consider both anticompetitive and procompetitive explanations for challenged practices and to attend to the magnitudes of the social consequences of correct and mistaken imposition of liability in order to identify the various ways and senses in which market power bears on optimal decision-making.

In competition law, market power requirements are often articulated in terms of market shares. The use of market share thresholds, however, conflates two distinct questions: (1) How much market power exists in a given situation? (2) How much market power should the law require? As a consequence, neither question is answered, or even directly illuminated. Furthermore, because market shares are not themselves measures of market power but instead merely a factor that bears on its magnitude in a given setting, they are inapt answers to both inquiries. Their use involves a category mistake. The identified problems are illustrated by unpacking Learned Hand’s famous pronouncement in Alcoa of the market shares required for the offense of monopolization, but the core defects characterize all market share declarations.

Substantial evidence suggests that savings behavior may depart from neoclassical optimization. This article examines the implications of raising the savings rate – whether through social security, retirement plans, or otherwise – for labor supply, where labor supply is determined by behavioral utility functions that reflect the non-neoclassical character of savings behavior. Under one formulation, raising the targeted savings rate has the same effect on labor supply as that of raising the labor income tax rate; under a second, raising the targeted savings rate has no effect on labor supply; and under a third, raising the targeted savings rate increases labor supply regardless of the slope of the labor supply curve. Effects on labor supply are particularly consequential because of the significant preexisting distortion due to labor income taxation.

This essay considers the appropriate conceptual framework for assessing the taxation of private transfers to individuals. Although it is conventional to emphasize the role of estate and gift taxation or inheritance taxation in redistributing income from the rich to the poor, the revenue effects of transfer taxation, and its distortionary effect on labor supply and savings, it is suggested in line with some recent work that the dominant focus should be on positive and negative externalities attributable to giving. The fundamental reason is that transfer tax reform can be combined with adjustments to other aspects of the fiscal system, notably the income tax, so as to keep constant most effects other than externalities.

Legal proceedings often involve multiple stages: U.S. civil litigation allows motions to dismiss and for summary judgment prior to trial; government agencies as well as prosecutors employ investigative and screening processes before initiating formal adjudication; and many Continental tribunals move forward sequentially. Decisionmaking criteria have proved controversial, as indicated by reactions to the Supreme Court’s recent decisions in Twombly and Iqbal and its 1986 summary judgment trilogy, which together implicate the Supreme Court cases most cited by federal courts. Neither jurists nor commentators have articulated coherent, noncircular legal standards, and no attempt has been made to examine systematically how decisions at different procedural stages should ideally be made in light of the legal system’s objectives. This Article presents a foundational analysis of the subject. The investigation illuminates central elements of legal system design, recasts existing debates about decision standards, identifies pathways for reform, and provides new perspectives on the nature of facts and evidence and on the relationship between substantive and procedural law.

The marginal social value of income redistribution is understood to depend on both the concavity of individuals’ utility functions and the concavity of the social welfare function. In the pertinent literatures, notably on optimal income taxation and on normative inequality measurement, it seems to be accepted that the role of these two sources of concavity is symmetric with regard to the social concern about inequality in the distribution of income. Direct examination of the question, however, reveals that this is not the case. Concavity of utility has a simple, direct effect on the marginal social value of redistribution, as might be expected, whereas concavity of the social welfare function has a more subtle influence, one that in some cases may not be very significant. The implications of this difference are examined for some standard forms of utility and welfare functions, including particular versions that appear in the optimal income taxation literature.

The burden of proof is a central feature of all systems of adjudication, yet one that has been subject to little normative analysis. This Article examines how strong evidence should have to be in order to assign liability when the objective is to maximize social welfare. In basic settings, there is a tradeoff between deterrence benefits and chilling costs, and the optimal proof requirement is determined by factors that are almost entirely distinct from those underlying the preponderance of the evidence rule and other traditional standards. As a consequence, these familiar burden of proof rules have some surprising properties, as do alternative criteria that have been advanced. The Article also considers how setting the proof burden interacts with other features of legal system design: the determination of enforcement effort, the level of sanctions, and the degree of accuracy of adjudication. It compares and contrasts a variety of legal environments and methods of enforcement, explaining how the appropriate proof requirements differ qualitatively across contexts. Most of the questions raised and answers presented differ in kind—as well as in result—from those in prior literature.

Competition law’s prohibition on price fixing and related horizontal agreements is one of its few uncontroversial provisions and is understood to be well grounded in economic principles that are taken to provide the foundation for competition policy. Upon examination, however, commonly offered views of the law’s conception of agreement prove to be difficult to articulate in an operational manner, at odds with key aspects of legal doctrine and practice, and unrelated to core elements of modern oligopoly theory. This Article explores these and other features of the agreement requirement and suggests the need for a wholesale rethinking of how competition law should approach the oligopoly problem.

Ever since Corlett and Hague, it has been understood that it tends to be optimal on second-best grounds to (relatively) tax complements to leisure and subsidize substitutes because doing so helps to offset the distorting effect of taxation on labor supply. Yet, Atkinson and Stiglitz’s optimal income/commodity tax analysis claims to demonstrate the opposite, and derivations in leading texts on optimal taxation offer opposing conclusions regarding the sign of optimal deviation of commodity taxes from uniformity. It is demonstrated that the optimality of relatively taxing leisure complements is indeed correct, and conflicting results are explained.

The burden of proof is a central feature of adjudication, and analogues exist in many other settings. It constitutes an important but largely unappreciated policy instrument that interacts with the level of enforcement effort and magnitude of sanctions in controlling harmful activity. Models are examined in which the prospect of sanctions affects not only harmful acts but also benign ones, on account of the prospect of mistaken application of sanctions. Accordingly, determination of the optimal strength of the burden of proof, as well as optimal enforcement effort and sanctions, involves trading off deterrence and the chilling of desirable behavior, the latter being absent in previous work. The character of the optimum differs markedly from prior results and from conventional understandings of proof burdens, which can be understood as involving Bayesian posterior probabilities. Additionally, there are important divergences across models in which enforcement involves monitoring (posting officials to be on the lookout for harmful acts), investigation (inquiry triggered by the costless observation of particular harmful acts), and auditing (scrutiny of a random selection of acts). A number of extensions are analyzed, in one instance nullifying key results in prior work.