Competition in a Pure World of Internet Telephony

From the angle of competition policy, Voice over IP looks like a panacea. It not only brings better service, but it also increases competitive pressure on former telecommunications monopolists. This paper points to the largely overlooked downside. In a pure world of Internet telephony, there would be no charge for individual calls, nor for telephony, as distinct from other services running over the uniform network. Specifically, establishing property rights for either of these would be costly, whereas these property rights were automatic and free of charge in switched telephony. Giving voice over IP providers classic telephone numbers would enhance systems competition with switched telephony. But this would make it more difficult for clients to swap providers. The anti-competitive caller pays principle would extend to IP telephony.property right, non-linear pricing, pure bundling, club good, cross-subsidisation, packet switched telephony

The Difficult Reception of Rigorous Descriptive Social Science in the Law

Mutual disdain is an effective border patrol at the demarcation lines between disciplines. Social scientists tend to react with disdain when they observe how their findings are routinely stripped of all the caveats, assumptions and careful limitations once they travel into law. Likewise, lawyers tend to react with disdain when they read all the laborious proofs and checks for what looks to them like a minuscule detail in a much larger picture. But mutual disdain comes at a high price. All cross-border intellectual trade is stifled. This paper explores the social science/law border from the legal side. The natural barriers turn out to be significant, but not insurmountable. Specifically the paper looks at the challenges of integrating rigorous descriptive social science into the application of the law in force by courts and administrative authorities. This is where the gap is most difficult to bridge. The main impediments are implicit value judgments inherent in models, conceptual languages and strictly controlled ways of generating empirical evidence; the difference between explanation, hypothesis testing and prediction, on the one hand, and decision-making, on the other; the ensuing difference between theoretical and practical reasoning, and the judicial tradition of engaging in holistic thinking; last but not least, the strife of the legal system for autonomy, in order to maintain its viability. If a legal academic assumes the position of an outside observer, she may entirely ignore all these concerns and simply follow the methodological standards of descriptive social science. This is, for instance, what most of law and economics does. The legal academic may, instead, choose to contribute to the making of new law. She will then find it advisable to partly ignore the strictures of rigorous methodology in order to be open to more aspects of the regulatory issue. But it is not difficult, at least, to follow the standards of the social sciences for analysing the core problem. The integration is most difficult if an academic does doctrinal work. But it is precisely here where the division of intellectual labour between legal practice and legal academia is most important. Academics who themselves are versatile in the respective social science translate the decisive insights into suggestions for a better reading of statutory provisions or case law.law and economics, law and statistics, explanation vs. decision-making, practical reasoning, psychology of judicial decision-making

Law as a Precondition for Religious Freedom

Throughout history, people have suffered for the sake of their religion. Religious organisations have been forbidden or governments have tightly controlled them. The constitutional protection of freedom of religion is a necessity. In a religiously pluralistic world, granting the guarantee is also in the state’s best interest. Yet religions have been hesitant to embrace the guarantee. It implies secularism. Religious freedom is balanced against other freedoms, and against legitimate state interests. Government is faced with social forces that are grounded in eternity and that cannot be proven to be wrong. Seemingly the constitutional protection is a threatening for religions and the state as it is beneficial. Yet the essentially pragmatic nature of law overcomes the tragic dilemma – albeit only at the price of acknowledging that jurisprudence is policy-making.religions freedom, neutrality principle, human rights, pragmatism, proportionality principle, balancing, margin of appreciation, regulability

An Experimental Contribution to the Revision of the Guidelines on Research and Development Agreements

The European Commission is working on a revision of its Guidelines on Research and Development Agreements. On this occasion, this note surveys the existing experimental evidence. Experiments add a number of additional arguments to the normative assessment. R&D agreements have a much smaller effect on later competition in the product market if they serve as a substitute for incomplete (legal) protection of innovation effort. They may help firms settle the resulting fairness issue, and stay away from investment wars. Using the results from 107 published experiments on oligopoly, a meta-study shows that clearing an R&D agreement can be beneficial since it removes the additional collusion incentive resulting from fear that, through successful innovation, competitors might gain an advantage. This is the case if the opposite market side has countervailing power, and the more market conditions are stable. By contrast, the meta-data suggests that R&D agreements increase the risk of collusion in the product market if products are substitutes, if capacity cannot immediately be extended, if market participants may communicate, and if they are experienced; the latter two conditions are very likely to hold in the field.Antitrust, Innovation, research and development agreements, block exemption, oligopoly experiments, meta-study

Incentives for Process Innovation in a Collusive Duopoly

Two suppliers of a homogenous good know that, in the second period, they will be able to collude. Gains from collusion are split according to the Nash bargaining solution. In the first period, either of them is able to invest into process innovation. Innovation changes the status quo pay-off, and thereby affects the distribution of the gains from collusion. The resulting innovation incentive is strictly smaller than in the competitive case.Duopoly, Collusion, Innovation Incentives

Social Dilemmas, Revisited from a Heuristics Perspective

The standard tool for analysing social dilemmas is game theory. They are reconstructed as prisoner dilemma games. This is helpful for understanding the incentive structure. Yet this analysis is based on the classic homo oeconomicus assumptions. In many real world dilemma situations, these assumptions are misleading. A case in point is the contribution of households to climate change. Decisions about using cars instead of public transport, or about extensive air conditioning, are typically not based on ad hoc calculation. Rather, individuals rely on situational heuristics for the purpose. This paper does two things: it offers a model of heuristics, in the interest of making behaviour that is guided by heuristics comparable to behaviour based on rational reasoning. Based on this model, the paper determines the implications for the definition of social dilemmas. In some contexts, the social dilemma vanishes. In other contexts, it must be understood, and hence solved, in substantially different ways.Heuristic, Social Dilemma, Public Good, Prisoner’s Dilemma

An Experimental Contribution to the Theory of Customary (International) Law

In their majority, public international lawyers postulate that for a new rule of customary law to originate, two conditions must be fulfilled: there must be consistent practice, and it must be shown that this practice is motivated by the belief that such behaviour is required in law. Maurice Mendelson (Recueil des Cours 272 (1998) 155) has challenged this view. He believes that the majority view ignores the fundamentally incomplete nature of public international law. He claims that the new rule emerges because mere practice leads to convergent expectations. This paper uses data from student experiments with a linear public good to show that behaviour con-verges even absent verbal communication; that convergence is guided by mean contributions in the previous round, which serve as an implicit norm; that freeriding on this implicit norm is re-garded as illegitimate; that cooperation can be stabilised at a high level if “reprisals” are permitted. Hence the mechanism of norm formation proposed by Maurice Mendelson is fully borne out by the experimental data.experiment, customary international law, opinio iuris, linear public good

Intellectual Property as a Carrot for Innovators Using Game Theory to Show the Limits of the Argument

Policymakers all over the world claim: no innovation without protection. For more than a century, critics have objected that the case for intellectual property is far from clear. This paper uses a game theoretic model to organise the debate. It is possible to model innovation as a prisoner's dilemma between potential innovators, and to interpret intellectual property as a tool for making cooperation the equilibrium. However, this model rests on assumptions about cost and benefit that are unlikely to hold, or have even been shown to be wrong, in many empirically relevant situations. Moreover, even if the problem is indeed a prisoner's dilemma, in many situations intellectual property is an inappropriate cure. It sets incentives to race to be the first, or the last, to innovate, as the case may be. In equilibrium, the firms would have to randomise between investment and non-investment, which is unlikely to work out in practice. Frequently, firms would have to invent cooperatively, which proves difficult in larger industries.intellectual property, game theory

Institutions for Intuitive Man

By its critics, the rational choice model is routinely accused of being unrealistic. One key objection has it that, for all nontrivial problems, calculating the best response is cognitively way too taxing, given the severe cognitive limitations of the human mind. If one confines the analysis to consciously controlled decision-making, this criticism is certainly warranted. But it ignores a second mental apparatus. Unlike conscious deliberation, this apparatus does not work serially but in parallel. It handles huge amounts of information in almost no time. It only is not consciously accessible. Only the end result is propelled back to consciousness as an intuition. It is too early to decide whether the rational choice model is ultimately even descriptively correct. But at any rate institutional analysts and institutional designers are well advised to take this powerful mechanisms seriously. In appropriate contexts, institutions should see to it that decision-makers trust their intuitions. This frequently creates a dilemma. For better performance is often not the only goal pursued by institutional intervention. Accountability, predictability and regulability are also desired. Sometimes, clever interventions are able to get them both. Arguably, the obligation to write an explicit set of reasons for a court decision is a case in point. The judge is not obliged to report the mental processes by which she has taken her decision. Justification is only ex post control. Intuitive decision-making is even more desirable if the underlying social problem is excessively complex (NP hard, to be specific), or ill-defined. Sometimes, it is enough for society to give room for intuitive decision-making. For instance, in simple social dilemmas, a combination of cheater detection and punishing sentiments does the trick. However, intuition can be misled. For instance, punishing sentiments are triggered by a hurt sense of fairness. Now in more complex social dilemmas, there are competing fairness norms, and people intuitively choose with a self-serving bias. In such contexts, institutions must step in so that clashing intuitions do not lead to social unrest.intuition, consciousness, rational choice, heuristics, ill-defined social problems, institutions

The Behaviour of Corporate Actors. A Survey of the Empirical Literature

Much of behavioural research, both in economics and in psychology, is limited in one respect: it tests isolated individuals. In many practically relevant situations, there are discernible actors, but these actors are not individuals. Rather firms, regulatory bodies, associations, countries or international organisations become active. The social problem at hand is best understood if one attributes judgement and decision making to higher level aggregates of individuals. Which elements from the rich body of behavioural evidence transfer to these corporate actors? Are there other deviations from the predictions of the rational choice model, not present or studied in individuals? This paper surveys the empirical literature from experimental economics, psychology, sociology and law. While some building blocks, like the behaviour of managers and of ad hoc groups, are relatively well understood, our knowledge about the effects of more elaborate internal structure on the dealings of corporate actors with the outer world is still relatively limited.Behaviour, Firms, Organizations, Associations, Groups