In a paper published in the Journal of Economic Perspectives in the fall of 2003, Robert Crandall and Clifford Winston all but call for the repeal of the Nation’s antitrust laws. Their qualifications to make such a radical proposal are in doubt, but more importantly their purported review of empirical studies of overt price-fixing effects is shallow, biased, and naïve. Crandall and Winston’s assertion that the direct benefits of convicting pricefixers are slight is central to their paper’s thesis. Their review is shallow because the five studies that they examine comprise less than 2% of the economic literature that quantitatively estimates the price effects of explicit price-fixing schemes; it is biased because the chosen studies find no or weak price effects, whereas the vast majority of such studies find significant positive effects on price during the collusive period; it is naïve because the selected studies are either severely flawed or irrelevant.antitrust, price-fixing

John M. Connor

English

Research Papers in Economics

 
 
 
 
 
 
 
 
 
 
 
Comment on Crandall and Winston (2003) 
 
By 
 
John M. Connor 
 
Staff Paper #04-01 
 
January 2004 
 
 
 
 
 
 
Department of Agricultural Economics 
 
Purdue University 
 
 
 
 
 
 
 
Purdue University is committed to the policy that all persons shall have equal access to its programs and 
employment without regard to race, color, creed, religion, national origin, sex, age, marital status, 
disability, public assistance status, veteran status, or sexual orientation  i  
Comment on Crandall and Winston 
by 
John M. Connor 
Professor of Industrial Economics 
Dept. of Agricultural Economics, Purdue University 
West Lafayette, Indiana 47907-1145 
jconnor@purdue.edu 
Staff Paper # 04-01 
January 2004 
 
 
Abstract 
 
In a paper published in the Journal of Economic Perspectives in the fall of 2003, Robert 
Crandall and Clifford Winston all but call for the repeal of the Nation’s antitrust laws.  
Their qualifications to make such a radical proposal are in doubt, but more importantly 
their purported review of empirical studies of overt price-fixing effects is shallow, biased, 
and naïve. Crandall and Winston’s assertion that the direct benefits of convicting price-
fixers are slight is central to their paper’s thesis.  Their review is shallow because the five 
studies that they examine comprise less than 2% of the economic literature that 
quantitatively estimates the price effects of explicit price-fixing schemes; it is biased 
because the chosen studies find no or weak price effects, whereas the vast majority of 
such studies find significant positive effects on price during the collusive period; it is 
naïve because the selected studies are either severely flawed or irrelevant. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  1  
Comment on Crandall and Winston 
by 
John M. Connor 
 
 
This paper is an oddly slap-dash product far below the usual standards of the Journal of 
Economic Perspectives.  While the Journal encourages articles (generally solicited by the 
editors) on several underserved topic areas, including “economic analyses of policy 
issues,” those invited in the past usually have been authors with recent and long histories 
of work in the issue. Indeed, the first purpose of the Journal is “to synthesize and 
integrate lessons learned from active lines of economic research.”   A cursory 
examination of the authors’ recent publications fails to find a broad background in 
research that evaluates the benefits of antitrust enforcement. Rather, both authors have 
established reputations as specialists in two formerly regulated industries.  The Journal is 
more permissive than most economics journals in allowing forcefully argued position 
papers to appear in its pages, but Crandall and Winston seem to be operating in a zone 
somewhere beyond provocation. 
 
Crandall’s nine most recent publications (all dated 1998 to2002) listed in Econlit deal 
with regulatory matters in the telecommunications industry, which is hardly typical of the 
range of industries that occupy antitrust enforcement. In a footnote on page 24 describing 
his qualifications, Crandall reinforces that characterization by revealing himself to be a 
consultant for Microsoft and other companies in telecommunications.  He chose two of 
his published articles for the paper’s reference list, one written in 1975 and a law review 
article from 2001. 
 
Winston is an active researcher in transportation economics; all but one of his Econlit-
listed publications in the past five or six tears fall in this category. The three articles he 
chose to cite in the paper’s references deal with the airline industry.  Again, while 
Winston is certainly conversant with an industry that may have significant network 
effects, one is struck with the absence of a concentration of legal-economic research on 
monopolization, price fixing, or mergers.   
 
The authors either consciously exclude or display a lack of familiarity with much 
mainstream research on the benefits of antitrust enforcement and ignore most of the 
optimal deterrence literature.  Besides the numerous comments made by Baker (2003) 
and Kwoka (2003) along these lines, I note the following flaws. 
 
In their shallow, biased, and naive review of studies of overt price-fixing effects, Crandall 
and Winston cite five works in support of their assertion that the direct benefits of 
convicting price-fixers are slight.  Two articles examine the college-financial-aid case 
that is, as Kwoka states, hardly typical of the 100 or so cases brought by the DOJ each 
year.  The review is shallow because the remaining three studies comprise less than 2% 
of the economic literature that quantitatively estimates the price effects of explicit price- 2  
fixing schemes
1; it is biased because the vast majority of such studies find significant 
positive effects on price during the collusive period; it is naïve because the these studies 
are either severely flawed or irrelevant. 
 
The article by Newman (1988) is a bloated comment on an analysis of the influential 
Bakers of Washington State case that was published in 1967 about three years after the 
wholesale bakers were convicted at trial, a conviction upheld on appeal.  Newman’s 
analysis takes issue with the estimate that the bakers raised bread prices in the Seattle 
area an average of more than 10% for several years.  Newman’s argument that the bakers 
could not have successfully raised price turns mightily on the entry of a single new firm 
that imported bread from Vancouver, British Columbia.   The original authors of the 
analysis replied to Newman; among other points Mueller and Parker (1992) cite evidence 
that the entrant that supposedly broke the bread cartel had two employees and never 
attained close to 1% of the market.  A disinterested reading of these two papers by even 
minimally trained IO economists would readily conclude that Mueller and Parker get the 
best of the debate and that Newman’s paper is an egregious example of a breakdown in 
the peer-review process at the Journal of Law and Economics. 
 
The second empirical cited by Crandall and Winston is an analysis of airline price wars 
by Morrison and Winston (1996).  This innovative and informative research does not 
support the view that convictions for explicit price fixing are misdirected.  First of all, 
nowhere in Morrison and Winston (1996) is it claimed that the airlines conspired on 
price.  Equally important is the fact that this research aims at explaining the pattern of 
price wars on finely defined city-pair routes. Even if the regressions showed that a 
consent decree had a [presumably negative] effect on the incidence of price wars, such a 
result does not necessarily imply that prices on the 95%-plus of the routes not involved in 
price wars did not increase sufficiently to compensate the airlines for the losses on the 
price-war routes.  Finally, the regression results (reported verbally in footnote 48) are of 
doubtful value in a probit model that contains no less than 56 other independent variables 
and where the dummy variable for the consent-decree period covers only about six 
quarters at the end of a 69-quarter data sample. 
 
The third empirical publication cited by Crandall and Winston is Sproul’s (1993) analysis 
of long term price changes in the years following the 1973-1983 indictments of 25 price-
fixing conspiracies. This piece of evidence is certainly relevant to the issue at hand, but 
like Newman (1988) it is deeply flawed in its execution. Werden (2003) has commented 
on Sproul’s paper: 
 
  “Price changes following indictments … are not indicative of the price-elevating 
  effects of most cartels, because many are investigated after they break down and 
  even more break down when they learn that they are the targets of criminal 
  investigations. Moreover, Sproul’s data are unsuitable to the task because the 
  price series including the cartelized market typically include so much more that 
  the price effect of the cartel was easily lost; indeed, BLS sampling techniques 
  might have totally missed the cartelized product” (p. 1). 
                                                 
1 A co-author and I are currently surveying this literature for a paper that ought to be ready in a few months.   3  
Thus, we seem to have another failure in the peer-review process, this time at the Journal 
of Political Economy.  The fact that no similar research to Sproul’s has appeared since 
1993 even though many more indictments are available for testing may be another 
indicator that researchers have a similar view about its validity. (Also, I am sure that the 
fact that JLE and JPE are both University of Chicago journals is just a coincidence.)  
 
I have commented primarily on Crandall and Winston’s critique of cartel enforcement, 
but two other features of their paper deserve comment. First, they claim on page 17 that 
their regression model assessing merger policy is set up using data calibrated to the two-
digit SIC major industry group because of “data availability.”  As Kwoka (2003: 4-5) 
says, employing such aggregated data is highly suspect in any sort of industrial-
organization analysis.  If Crandall and Winston mean that data are not available at 
industry levels below the two-digit SIC, they are sorely mistaken. Although it takes 
patience and craftsmanship, enforcement patterns are available at the four-digit SIC level 
of aggregation (see Preston and Connor 1992).  
 
Second, Crandall and Winston’s discussion of antitrust deterrence seems quite muddled 
and outdated. One international study of antitrust by Stigler (1964) is cited that finds no 
differences in effects of seller concentration, but their avowed purpose is to comment on 
deterred conduct, not structure. While they seem to grudgingly concede that government 
antitrust convictions may deter price fixing, they attribute any such deterrence primarily 
to private suits, citing another JPE  paper, Block et al. (1981).  Their final piece of 
evidence on collusive deterrence violates their stated purpose of searching only for 
empirical evidence.  The article they select is an entirely theoretical unpublished analysis 
of optimal deterrence (Kobayashi 2002).  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  4  
     References 
 
Block, Michael Kent, et al.  The Deterrent Effect of Antitrust Enforcement.  Journal of Political 
 Economy  89 (1981): 429-425. 
 
Baker, Jonathan B.  The case for Antitrust Enforcement.  Journal of Economic Perspectives 17 
  (Fall 2003): 27-50. 
 
Crandall, Robert W. and Clifford Winston.  Does Antitrust Policy Improve Consumer Welfare?  
  Assessing the Evidence.  Journal of Economic Perspectives 17 (Fall 2003): 3-26. 
 
Kobayashi, Bruce.  Antitrust, Agency, and Amnesty, Law and Economics Working Paper 02-04.  
  George Mason University School of Law (2002). 
 
Mueller, Willard F. and Russell C. Parker. Bakers of Washington Cartel: Twenty-Five Years 
 Later.  Review of Industrial Organization 7 (1992): 75-82. 
 
Preston, Warren P. and John M. Connor.  An Economic Evaluation of Federal Antitrust Activity 
  in the Manufacturing Industries: 1980-1985.  Antitrust Bulletin 37 (1992): 969-996. 
 
Stigler, George.  The Economic Effects of the Antitrust Laws.  Journal of Political Economy 72 
 (1964):  44-61. 
 
Werden, Gregory J. The Effect of Antitrust Policy on Consumer Welfare: What Crandall and 
  Winston Overlook, EAG 03-2. Washington, DC: Economic Analysis Group, Antitrust 
  Division, U.S. Department of Justice (January 2003). 
 

An Economic Evaluation of Federal Antitrust Activity in the Manufacturing Industries:

Bakers of Washington Cartel: Twenty-Five Years Later.

Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence.

The case for Antitrust Enforcement.

The Deterrent Effect of Antitrust Enforcement.

The Economic Effects of the Antitrust Laws.

The Effect of Antitrust Policy on Consumer Welfare: What Crandall and Winston Overlook,

Comment on Crandall and Winston

http://ageconsearch.umn.edu/bitstream/28659/1/sp04-01.pdf

Comment on Crandall and Winston

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics