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  • "The curious task of economics is to demonstrate to men how little they know about what they imagine they can design."

    - F.A. Hayek

Supreme Court Dabbles in Econ?!

Posted by The_Chef On 9:32 AM 1 comments

This from the Washington Post:
"The U.S. Supreme Court yesterday overturned a nearly century-old ruling that prohibited manufacturers from dictating the minimum prices retailers must charge for their goods, saying such agreements could spark competition rather than stifle it.
The 5 to 4 opinion, delivered by Justice Anthony M. Kennedy, found that minimum-pricing requirements by manufacturers do not constitute an automatic violation of the Sherman Antitrust Act. Instead, the agreements must be judged on a case-by-case basis according to a "rule of reason" to determine whether they interfere with market competition."

I have several problems with this.

Since when has our legal structure ever used such a thing as reason? I mean when you really get down to it the only way a true monopoly can exist is if it is legitimized and protected by the Federal Government. In a market where entrance into and out of the market is it entirely possible for an entrepreneur to knock a so-called Monopoly down a notch and in the process capture a portion of market share.

the fact that there happens to be one business that seems to dominate a given market at this time in NO way makes it a monopoly. In fact, if you look at many of the so-called (I say so-called because I honestly believe that "monopoly" is just a modern anti-capitalist buzzword) "monopolies" do not ACT like the microeconomic models tell us they should. Strange how they act like firms in a competitive market...

But here are the other issues and these both bother me a lot!
1.) What is wrong with allowing producers of a good to contract with a seller and say 'You buy this from us and you don't sell it below a price we set'? First off no self respecting retail store will go for it. They need those sale prices to clear out inventory. You see it all the time when you walk into a clothing store. Now some carriers of VERY expensive luxury goods might just go for this, but I wouldn't expect to see the price of Hanes T-Shirts skyrocket.
2.)This quote astounded me:
"Justice Stephen G. Breyer filed a dissenting opinion with Justices John Paul Stevens, David H. Souter and Ruth Bader Ginsburg, arguing that little has changed in the U.S. economy to warrant overruling a decision that has held up since 1911."(emphasis mine)

WHAT IN THE HELL!?! Are they really this dumb? Is 4/9 of the ruling court of our land legally retarded? The Economy hasn't changed? Or is just that it hasn't changed enough for the sainted wearers of black robes to decide that we are fit for government to cease regulating our lives and businesses?

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1 Response for the "Supreme Court Dabbles in Econ?!"

  1. Anonymous says:

    Of course the Supreme Court dabbles in Econ! There are some good books outlining the economics of Supreme court decisions--they may not all be winners, but economically efficient Supreme Court rulings are not in a minority.

    Since when has our legal structure ever used such a thing as reason?

    Since always? Richard Posner's Economic Analysis of Law gives much insight into this. In fact, a well functioning economy requires a good legal structure.

    "It is only under the shelter of the civil magistrate that the owner of ... valuable property ... can sleep a single night in security." -- Adam Smith on property law.

    I mean when you really get down to it the only way a true monopoly can exist is if it is legitimized and protected by the Federal Government.

    Or if it's an international organization. Regardless, this argument doesn't make monopolies any better--in fact, that's included in the definition of a monopoly. There are serious issues with monopolies like the AMA.

    Oh, and your micro theory is a bit off:

    In a market where entrance into and out of the market is it entirely possible for an entrepreneur to knock a so-called Monopoly down a notch and in the process capture a portion of market share.

    A monopolized market is where, by definition, entrance is blocked or extremely difficult.

    (I say so-called because I honestly believe that "monopoly" is just a modern anti-capitalist buzzword)

    That certainly doesn't convince me why it's a word taught by capitalist-loving economists.

    In fact, if you look at many of the so-called ... "monopolies" do not ACT like the microeconomic models tell us they should. Strange how they act like firms in a competitive market...

    That's not because a one business market isn't a monopoly (because that indeed is part of the definition), but because what the law claims is a monopoly is not usually what economics says is a monopoly. While economics is used for some laws, anti-trust laws are notoriously bad. I had a (very highly acclaimed) professor go so far as to claim that there has never been one good anti-trust case. Then again, the theory of monopolies, just like the theory of perfect competition, are abstract theories that never perfectly match real life. Does that mean we should toss perfect competition too? No, the theories are useful tools that come close to describing most markets.

    But here are the other issues and these both bother me a lot!
    1.) What is wrong with allowing producers of a good to contract with a seller and say 'You buy this from us and you don't sell it below a price we set'?


    I can't tell whether or not this is a rhetorical question. Do you think it's pointless to allow a contract to exist because no one would agree to it? That may be true, but it may not be true that no one would agree to it under the right circumstances. I do want to mention that an economic approach to contract law dictates that all contracts should be pareto efficient, and allowing such a contract to exist is likely not pareto efficient.

    2.)This quote astounded me:

    I think most economists think that how the economy works has not changed since 1911. Likely since well before then. Our models and our understanding and the makeup of the economy has changed--and even the field of economics--but how it actually works has been driven by the same principles. The quote is mostly likely just imprecise.