Bound print copies of George Mason School of Law’s working paper series on law and economics are available in the Law Library. The bound set often includes initial drafts of papers. Search Mason’s Catalog to locate a working paper.

Recent Working Papers:


App Stores, Aftermarkets & Antitrust

10-2021 | John Yun

ABSTRACT:

App stores have become the subject of controversy and criticism within antitrust. For instance, app developers such as Spotify and Epic Games (creator of Fortnite) allege that Apple’s 30 percent cut of all sales in the App Store violates the antitrust laws and is indicative of monopoly power. The idea is that iPhone users are locked into Apple’s walled garden iOS platform, which frees Apple to engage in misconduct in the App Store “aftermarket” to the detriment of users and app developers.

This Article challenges the recent economic and legal characterizations of app stores and the nature of the alleged harm. First, this Article builds an accessible, economic framework to illustrate how app stores do not represent the same type of aftermarkets that were condemned in the Supreme Court’s landmark Kodak case. Importantly, the differences between Kodak-like aftermarkets and app store aftermarkets raise serious questions whether the digital revival of the aftermarket doctrine conforms with the economic realities of these markets.

Second, the complexity of the commercial relationships found in app stores has raised questions regarding who has standing to seek antitrust damages in this type of market setting. This Article provides an overview of the development of the current doctrine of antitrust standing—focusing on Illinois Brick and Apple v. Pepper. Further, this Article contends that Justice Kavanaugh’s opinion in Pepper, which gave iPhone users the right to sue Apple over the 30 percent commission, was right for the wrong reason. Instead, Justice Gorsuch’s dissent offers a much more economically sound approach to antitrust standing—as his “proximate cause” standard does not artificially focus on identifying the “direct purchaser,” which is unnecessarily limiting for more complex commercial relationships. As the number of antitrust claims against various app stores proliferate, the consequences of faulty characterizations of app stores will only grow.

Vaccine Passports as a Constitutional Right

8-2021 | Kevin Cope, Ilya Somin, Alexander Stremitzer

ABSTRACT:

Does the U.S. Constitution guarantee a right to a vaccine passport? In the United States and elsewhere, vaccine passports have existed for over a century, but have recently become politically divisive as applied to COVID-19. A consensus has emerged among legal experts that vaccine passports are often constitutionally permissible. Yet there has been almost no serious analysis about whether a vaccine passport can be a constitutional right: whether a government is constitutionally obligated to exempt fully vaccinated people from many liberty-restricting measures. While some measures may be unconstitutional regardless of to whom they apply, we argue that there exist certain public-health restrictions from which the vaccinated must constitutionally be exempted, even if the unvaccinated need not be. The government is never constitutionally obligated to impose liberty-restricting measures in response to an epidemic. But where it does so, it often has an obligation to exempt those who, being successfully vaccinated, pose little danger of transmitting the disease or suffering serious illness. Under U.S. constitutional law, vaccinated people might be entitled to exemptions from six sets of restrictions: (1) domestic travel and movement; (2) international travel; (3) uncompensated shutdowns, under the Fifth Amendment takings clause; (4) abortion, under the constitutional right to privacy; (5) restrictions on access to gun stores, under the Second Amendment; and (6) assembly and worship, under the First Amendment freedom of assembly and free exercise clauses. Contrary to some social-justice and liberty-based arguments, this conclusion is also consistent with longstanding liberal principles of fair allocation of costs, equity, liberty, and non-discrimination.

The Illusion of Success: A Critique of Engine No. 1’s Proxy Fight at ExxonMobil

8-2021 | Bernard Sharfman

ABSTRACT:

With less than $40 million worth of ExxonMobil common stock in hand, but with $30 million to spend, Engine No. 1 executed a proxy fight that succeeded in getting three of its four nominated directors elected to the board of ExxonMobil. This victory was viewed as a success by environmentalists and Environmental, Social and Governance (“ESG”) investors.

To defend itself in the proxy fight, ExxonMobil was estimated to have spent $35 million. However, besides the money, it not hard to believe that thousands of hours of ExxonMobil management time (board members, executive management, and other managers down the line) were also spent on the effort.

Unfortunately, even after all these resources expended, this Article finds that nothing was really accomplished. The hedge fund activism of Engine No. 1 did not provide “a roadmap for Exxon[Mobil] to improve its performance or address the difficult questions impeding meaningful progress toward climate objectives.” In regard to the latter, Engine No. 1 did not provide the company with specific recommendations on how it could transition from a global leader in oil and gas production to a global leader in the production of clean energy. Also, there is no evidence that Engine No. 1 has served as a corrective mechanism (mitigating managerial inefficiencies) at ExxonMobil consistent with this Article’s theory of hedge fund activism. Moreover, and perhaps most importantly, Engine No. 1 may have created a deadly distraction in our global fight against climate change, a fight that should be taken on by governments all over the world, not hedge fund activists. The only apparent positive result of this activism, at least from the perspective of Engine No. 1, is that the entity got a huge marketing boost in its efforts to raise funds for its exchanged traded funds.

Growing Convergence: The Limited Role of Antitrust in Standard Essential Patent Disputes

8-2021 | Douglas Ginsburg, Joshua Wright, Camila Ringeling

ABSTRACT:

In the last couple of years, the United States Department of Justice (“DOJ”) and several European countries have reversed previous interventionist decisions and limited the role of antitrust in the resolution of disputes concerning Standard Essential Patent (“SEPs”). These jurisdictions recognize the need to protect intellectual property rights (“IPRs”) by making available injunctions against infringers. Courts have realized that hold-up by a patent holder demanding excessive royalties is not a widespread problem and that patent implementers may hold-out against paying any royalties whilst they continue to practice a patent. They have accordingly adopted new standards for granting injunctions in disputes involving SEPs with the goal of increasing efficiency and legal certainty. We discuss this shift and its implications for competition policy and innovation.

An Economic Analysis of Restitution for Mistaken Payments

8-2021 | Dhammika Dharmapala, Nuno Garoupa

ABSTRACT:

The law of restitution and unjust enrichment has emerged as an important and independent branch of private law. However, it has attracted relatively little economic analysis. The aim of this paper is to develop a general conceptual framework for the economic analysis of the core example of restitution - mistaken payments. Our framework distinguishes between scenarios with unilateral and bilateral harms from mistakes, and unilateral and bilateral precaution by payers and recipients. Using this taxonomy, we develop a formal model in a parsimonious setting with two buyer-seller pairs. This model generates several novel insights, based on the idea that mistaken payments impose a “transaction tax” on contracting parties. It implies that full restitution is socially optimal when harm is unilateral (i.e., when a mistaken payment harms only the payer). When harm is bilateral (i.e., the recipient would suffer net harm from receiving the payment and making full restitution), partial restitution is generally optimal. However, we propose a hypothetical decoupled regime that would (if it were feasible) lead to more efficient outcomes than would partial restitution. The decoupling regime is intended as a thought experiment that can arguably shed light on some of the foundational debates surrounding the law of restitution.

Church Autonomy after Our Lady of Guadalupe School: Too Broad? Or as Broad as it Needs to Be?

8-2021 | Helen Alvaré

ABSTRACT:

In Our Lady of Guadalupe School v. Morrissey-Berru (Guadalupe), the Supreme Court reaffirmed that the Religion Clauses of the First Amendment preserve a broad right of church autonomy. The breadth of Guadalupe’s church autonomy doctrine respecting religious institutions’ personnel decisions in particular, is potentially remarkable. It is, however, also required given the empirical evidence about the crucial role personal witness plays in preserving and promoting religious beliefs and norms. At the same time, Guadalupe’s church autonomy doctrine poses potentially dangerous incentives and consequences, threatening both the doctrine and religious institutions. This Article will examine these matters as follows: Part I will detail the breadth of Guadalupe’s church autonomy doctrine. Part II will attend to potentially narrower readings of the doctrine suggested by the majority opinion, especially the prospect that its application might be limited to teachers directly charged to transmit the faith. It concludes, however, that severe limitations are unlikely.

Parts III and IV propose that Guadalupe’s church autonomy doctrine is no broader than it needs to be respecting religions’ freedom to appoint personnel. Part III examines religious teaching about the role of personnel in preserving and communicating an institution’s faith, doctrine, and mission. Part IV reviews a body of empirical research indicating the dispositive role played by personal witness toward preserving and communicating religious beliefs and norms. This literature—variously published in the fields of “social influence” theory and the psychology and sociology of religion—confirms the practical wisdom of religions’ theologically-based personnel policy: to staff their institutions with persons whose beliefs and conduct strengthen the community’s witness to its faith and mission, by communicating to others the plausibility and even attractiveness of the religious mission(s). If Guadalupe means to allow religions to effectively govern their own “faith and doctrine,” including its transmission, then this empirical literature strongly indicates that the state will have to leave religions a wide berth of freedom to choose their own personnel.

Part V considers future threats to a broad church autonomy doctrine, and recommendations to counter these. The Guadalupe dissenters highlight fears that religious institutions will abuse their roles as employers and courts will abdicate their judicial responsibilities to determine the applicability of the church autonomy doctrine. Both of these errors can be avoided.

Rewards versus Imprisonment: The Impact of Choice

7-2021 | Murat Mungan

ABSTRACT:

Imprisonment and monetary rewards for non-convictions can similarly incentivize potential offenders to refrain from committing crime. Although imprisonment is expensive, it may still enjoy a cost advantage over rewards. This is because only detected criminals are imprisoned, whereas rewards need to be provided to the remaining, much larger, population. In this article I demonstrate that the possible cost disadvantages of rewards are mitigated when people are offered a choice between an enforcement scheme involving no rewards and another involving rewards coupled with longer imprisonment sentences. Specifically, by using rewards in this manner, one can jointly reduce crime, time served per convict, and the tax burden of the criminal justice system, under the same conditions as one could by introducing rewards without choice in an environment where there is perfect detection. Moreover, monetary rewards provide incentives through wealth transfers, but imprisonment operates by destroying wealth. This leads choice based reward regimes to be optimal unless the imprisonment elasticity of deterrence is higher than is empirically observed.

Deregulation and the Lawyers' Cartel

6-2021 | Nuno Garoupa, Milan Markovic

ABSTRACT:

At one time, the legal profession largely regulated itself. However, based on the economic notion that increased competition would benefit consumers, jurisdictions have deregulated their legal markets by easing rules relating to attorney advertising, fees, and, most recently, nonlawyer ownership of law firms. Yet, despite reformers’ high expectations, legal markets today resemble those of previous decades, and most legal services continue to be delivered by traditional law firms. How to account for this seeming inertia?

We argue that the competition paradigm is theoretically flawed because it fails to fully account for market failures relating to asymmetric information, imperfect information, and negative externalities. In addition, the regulatory costs imposed on sophisticated consumers such as corporate purchasers of legal services differ radically from those imposed on ordinary consumers who use legal services infrequently. Merely increasing the number and types of legal services providers cannot make legal markets more efficient. We illustrate our theoretical account with evidence from the United Kingdom, Europe, and Asia.

For legal markets to better serve the public, regulators must tailor solutions by segment. Regulators should seek to minimize negative externalities associated with the delivery of legal services to the corporate segment and confront information asymmetries that lead to the maldistribution of legal services in the consumer segment. Deregulation alone is insufficient and may in fact exacerbate existing market failures.

A Theory of Unenforced Laws

6-2021 | Thomas Miceli, Murat Mungan

ABSTRACT:

We consider a government’s interrelated decisions of enacting laws prohibiting harmful behavior and choosing how aggressively to enforce those laws. There are three broad policies available to the government in this regard: not prohibiting the act at all, enacting a law and enforcing it, and enacting a law and not enforcing it. When enactment is costly and a fraction of the population reflexively complies with the law once its enactment has been announced (reflecting an expressive function of law), all three policies may be optimal, depending on the severity of the harm from the act and the fraction of reflexive compliers.

Antitrust & Privacy: It's Complicated

6-2021 | James Cooper, John Yun

ABSTRACT:

Privacy and antitrust are on a collision course. Increasingly, privacy practices of large digital platforms are coming under antitrust scrutiny. It has become almost an article of faith that zero-price platforms exercise market power by offering lower levels of privacy. Yet, a rigorous examination of the assumptions underlying this data-price analogy is seriously lacking. Even more important, there is almost no empirical work that has been done in this area. This Article contributes to the debate by providing empirical evidence on the relationship between market power and privacy. First, we examine the privacy grade for each app in the Android App marketplace (covering the 2014-15 period)—as well as metrics that measure the number of users and app quality. These data suggest no relationship between privacy grades and measures of market concentration, that is, the Herfindahl-Hirschman Index (HHI) and market shares based on Google Play store categories. Second, we collected website traffic data from SimilarWeb and matched it to DuckDuckGo’s privacy ratings for sites in thirty-seven website categories. Again, the data suggest a lack of a reliable relationship between privacy ratings and market concentration. The theoretical analysis and empirical results cast doubt on the notion that firms exercise market power by reducing privacy levels.

The Normality of Knick: A Response to Sterk and Pollack

6-2021 | Ilya Somin

ABSTRACT:

The Supreme Court’s decision in Knick v. Township of Scott (2019), has been criticized for supposedly wreaking havoc on the normal system for adjudicating takings claims, and for seriously violating norms of stare decisis. Stewart Sterk and Michael Pollack’s insightful recent article is a valuable contribution to this type of critique of Knick. They expand on Justice Elena Kagan’s claim in her Knick dissent that the ruling “sends a flood of complex state-law issues to federal courts. It makes federal courts a principal player in local and state land-use disputes.” Sterk and Pollack argue that a wide range of takings-related issues will now find their way to federal court, thereby creating a variety of problems. They also endorse claims that Knick improperly overruled precedent. But ultimately, their arguments serve to underscore Knick’s normality, and the aberrational nature of Williamson County Regional Planning Commission v. Hamilton Bank (1985), the precedent Knick overturned.

If Sterk and Pollack’s critique of Knick is sound, it would justify barring access to federal court for many other constitutional claims against state and local governments. These, too, often encompass a wide range of government policies. If federal courts are to do the job of enforcing constitutional rights against violations by state and local governments, they must be prepared to do so in any situations where those violations might arise. Property rights claims under the Takings Clause of the Fifth Amendment are no exception to this vital rule.

Migration and Self-Determination

6-2021 | Ilya Somin

ABSTRACT:

Free international migration has enormous benefits. But many argue that governments can legitimately restrict migration in order to protect the supposed “self-determination” of natives. Some claims of this type are based on group rights theories, which hold that members of a particular racial, ethnic, or cultural group are the “true” owners of a particular territory. Others are based on notions of individual freedom of association, which analogize the rights of national governments to those of private property owners or members of a private club. This article criticizes both collective and individual rights theories that purport to justify a power to exclude migrants. It also critiques claims that the governments of migrants’ countries of origin can curtail emigration by forcing them to stay. I address these issues in much greater detail in my book Free to Move: Foot Voting, Migration, and Political Freedom, on which this article is in part based.

Applying Critical Loss for Market Definition in Merger Analysis: Do Court Decisions Offer Insight?

6-2021 | Malcolm Coate, Shawn Ulrick, John Yun

ABSTRACT:

Critical loss analysis is an empirical tool used to define relevant markets in antitrust law. The existence of two different critical loss methodologies, however, complicates its application. Harris and Simons introduced the first approach, which focused on evaluating the market-level effect of a small, but significant and non-transitory increase in price (“SSNIP”). Later, O’Brien and Wickelgren, along with Katz and Shapiro, introduced a firm-level approach to critical loss to derive a test that applies mathematical models of demand systems, foundationally based on a single-firm SSNIP, to proxy for a market-level price increase. A critical loss controversy evolved as the two tests can, but do not necessarily, generate different relevant markets. This paper examines the choice between the two methodologies—guiding practitioners and courts as to when each approach makes the most sense.

Comment to the New York Senate Committee on Consumer Protection in Connection with Its Pending Consideration of the Twenty-First Century Antitrust Act (S.933)

6-2021 | Tad Lipsky, Douglas Ginsburg, Joshua Wright, Bruce Kobayashi, John Yun

ABSTRACT:

Modern antitrust laws (including the federal antitrust laws and the antitrust laws of other states, as well as the cognate laws of numerous other jurisdictions around the world) generally include provisions that limit unilateral business conduct that may create, protect, or extend monopoly power by unreasonably exclusionary practices. In contrast, New York’s main antitrust law, the Donnelley Act of 1899, contains no such provision. The GAI recognizes that adding such a provision to the Donnelley Act is an intended objective of S.933.

There are several serious questions, however, raised by key aspects of S.933. Specifically, while S.933 §3 adopts a prohibition on monopolization similar to that found in Section 2 of the Sherman Act, 15 USC § 2, it also includes a prohibition on “abuse of dominance.” S.933 provides limited information regarding the definitions of “dominance” and “abuse.” Rather, S.933 delegates very broad discretion to define these terms to the New York Attorney General (subject to a specific form of legislative veto). This approach presents a number of serious risks and uncertainties. For reasons explained more fully below, the Committee should consider withholding any favorable recommendation on S.933 so long as it contains the abuse-of-dominance provision.

The Impact of Legal Team Size on Third Party Perceptions

5-2021 | Gilles Grolleau, Murat Mungan, Naoufel Mzoughi

ABSTRACT:

We examine whether the number of lawyers representing a defendant impacts third parties’ moral judgments and recommended punishments for similar offenses. Specifically, we use an experimental survey with a between-subjects design to examine third parties’ perceptions regarding the seriousness of fraud and tax evasion offenses and the punishments they deem appropriate for these offenses. Our benchmark analysis suggests that subjects’ perceived severity and seriousness of both offenses are significantly increasing in the number of lawyers representing the defendant. These results could be driven both by a direct impact of legal representation on third parties’ perceptions and preferences for punishment, or by third parties updating their beliefs regarding the seriousness of these offenses based on the defendant’s legal expenditures. To investigate whether the latter mechanism may be driving results, we conduct a second experimental survey wherein subjects are informed that the number of lawyers has been randomly determined. This causes the significant relationship between the perceived seriousness of the offense and the number of lawyers to vanish. However, for fraud offenses, increasing the number of lawyers from one to more lawyers increases third parties’ recommended sanctions, which is consistent with a psychological phenomenon of ‘luck envy’.

The Modern Common Law of Crime

5-2021 | Robert Leider

ABSTRACT:

Two visions of American criminal law have emerged. The first vision is that criminal law is statutory and posits that legislatures, not courts, draft substantive criminal law. The second vision, like the first, begins with legislative supremacy, but it ends with democratic dysfunction. On this view, while contemporary American criminal law is statutory in theory, in practice, American legislatures badly draft and maintain criminal codes. This effectively delegates the “real” drafting of criminal law to prosecutors, who form the law through their charging decisions.

This Article offers a third vision: that modern American criminal law is primarily “conventional” in the British Commonwealth sense of that term. That is, much of our criminal law is defined by unwritten common-law-like norms that are widely acknowledged and generally respected, and yet are not recognized as formal law enforceable in courts. This Article makes three contributions. First, it argues that criminal law conventions exist. Second, it explains how non-legal checks on prosecutorial power bring about criminal law conventions. Third, it provides an account for how legislatures and courts should respond to a criminal law heavily comprised of norms that rely primarily on non-legal sanctions for their enforcement.

Proxy Crimes

4-2021 | Piotr Bystranowski, Murat Mungan

ABSTRACT:

‘Proxy crimes’ is a phrase loosely used to refer to conduct which is punished only as a means to target another, harmful, conduct. Many criminal law scholars find the criminalization of this type of conduct unjustifiable from a retributivist perspective, whereas others note that proxy criminalization can contribute to mass incarceration and overcriminalization. Given the importance of these problems, a systematic analysis of proxy crimes, currently absent in the criminal law literature, is needed.

In this article, we provide a comprehensive analysis of proxy crimes by (i) surveying the existing literature and identifying gaps in prior analyses, (ii) proposing a simple yet useful definition of proxy crimes, (iii) identifying three specific categories of proxy crimes, and (iv) conducting an economic analysis of proxy criminalization which allows us to identify conditions under which proxy criminalization is socially (un)desirable. Finally, in light of our analysis, we present and discuss a specific affirmative defense that can be made available to defendants charged with a proxy crime. We explain how legislators can better balance the social benefits and detriments from proxy criminalization through these types of affirmative defenses.

The Investigation of Competition in Digital Markets: Looking in the Wrong Forest?

3-2021 | John Yun

ABSTRACT:

The majority staff of the House Judiciary Committee recently released its Report and Recommendations (“MSRR”) following an investigation of competition in digital markets. It claims that the leading digital technology firms (Alphabet, Amazon, Apple, Facebook) have acquired and maintained monopoly power by exclusionary conduct, and blames this on alleged narrow vision and weak enforcement efforts of the U.S. antitrust agencies and courts. The MSRR proposes a near-total revision of U.S. antitrust, restoring the enforcement approaches of fifty years ago when per se rules and structural presumptions were predominant. Considering that the U.S. is the unquestioned leader in digital technology, and that the EU has far fewer leading digital technology firms but does have antitrust rules very much like those proposed by the MSRR, it seems that both the MSRR’s view of the evidence and the logic of its proposals are questionable.

Constitutional Liquidation, Surety Laws, and the Right to Bear Arms

3-2021 | Robert Leider

ABSTRACT:

In recent years, some scholars have claimed that early American law did not recognize a general right to bear arms in public. Although most early state court decisions recognized such a right, these scholars contend that these decisions were peculiar to the antebellum South, which had a uniquely permissive weapon carrying culture. Outside the South, they argue, many states heavily restricted the public carry of weapons through surety laws. These surety laws required that, on complaint of a plaintiff who had “reasonable cause to fear an injury, or breach of the peace,” a person would have to post a bond to keep the peace if he went armed “without reasonable cause to fear an assault or other injury.” These scholars argue that the surety laws (which they call the “Massachusetts Model”) were descendants of the common law crime of going armed to the terror of the people, which, they claim, also generally prohibited private citizens from going armed. Based on this historical practice, they argue that the Second Amendment was not understood to encompass a general right to publicly carry weapons.

This book chapter challenges that historical narrative, and more importantly, disputes the relevance of the Massachusetts Model for constitutional interpretation. First, this book chapter argues that the relevance of nineteenth-century laws and judicial decisions does not primarily come from their ability to elucidate the original public meaning of the right to bear arms in 1791. Instead, their relevance lies in the idea of “constitutional liquidation,” that postenactment practice can settle the meaning of legal text.

Next, this chapter argues that the right to bear arms did not liquidate in favor of the constitutionality of the Massachusetts Model. No evidence has emerged that the passage of the surety laws was the product of thoughtful constitutional interpretation. And no course of practice emerged. As applied to the carriage of weapons for lawful purposes, the surety laws went largely unenforced. Likewise, there is almost no known record of American courts enforcing the common law crime of going armed to the terror of the people against individuals carrying weapons for lawful purposes.

Finally, the lack of enforcement meant that the surety laws failed to settle the meaning of the right to bear arms. Quite the contrary, all Massachusetts Model jurisdictions (including Massachusetts) adopted statutory criminal law governing the carriage of weapons in public. None of these states adopted a general ban on public carry. Instead, most states restricted only the carrying of concealed weapons, while a few others (including Massachusetts) had more lenient laws. Ultimately, the “Massachusetts Model” did not serve as a model for restricting public carry anywhere, even in Massachusetts.

The Legality of Legacy Business Practices in Antitrust

3-2021 | John Yun

ABSTRACT:

There is void in the literature at the intersection of antitrust law and legacy business practices. This issue has come to forefront with Epic Games’ antitrust suit against Apple for its App Store policies, which have been in place ever since the online marketplace opened in 2008. The same issues are at the center of the current Apple v. Pepper litigation and in regulatory proposals to alter Apple’s business practices both at the state and federal levels. Legacy conduct has also played a role in the Supreme Court’s controversial Ohio v. American Express decision and the Ninth Circuit’s FTC v. Qualcomm decision.

This raises a question as to how antitrust should treat long-standing business practices—practices that this Article labels “legacy conduct”—that initially were benign or even procompetitive, but which come under heavy scrutiny once the firm employing it obtains considerable market power. The fundamental question raised here is whether the fact that a product has become highly successful turns a previously legitimate business practice into one that antitrust should treat as objectionable.

This Article contends that three fundamental considerations should govern the proper assessment of cases involving legacy conduct under a rule of reason analysis. Further, this Article advances a policy recommendation that legacy conduct instituted long before a firm achieves substantial market power (particularly at the time of entry) and is common across competitors who do not themselves possess substantial market power, should be considered probative evidence that the practice is procompetitive. When these conditions are satisfied, defendants should be afforded a substantially reduced burden in proving the restraint is procompetitive under a rule of reason analysis commensurate with the strength of the legacy evidence.


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