The FTC just filed its first Robinson-Patman case in ~25 years.

And while price discrimination can be concerning, I have some questions about this one... Who exactly is it going to help? Consumers? The case is about possible "price discrimination" between big chains and small retailers. The core claim is that Southern charges higher prices to mom & pop stores vs chains.

People were quite interested in the paper on Prospect Theory. Here is another one by Oprea you should know.

Behavioral anomalies we attribute to risk (probability weighting, loss aversion) look like responses to complexity, not risk.

Forget all the talk about lotteries. Paper, Forthcoming AER:

Key evidence: When people evaluate "mirrors" - deterministic versions of lotteries paying expected value - they show the same biases. drive.google.com/file/d/10EEvCP…

Prospect theory is wrong as a theory of choice between lotteries.

And we've already had the evidence for decades!

A new paper by Bouchouicha, Oprea, Vieider, and Wu shows how 🧵 dropbox.com/scl/fi/y0spy1g… Prospect Theory's "most distinctive implication" is called the "fourfold pattern".

When faced with risky choices, people were supposed to be:

- Risk-seeking for low probability gains
- Risk-averse for high probability gains
- The opposite for losses

Useful summary of the market power literature from Chad Syverson, especially helpful at the conceptual level.

- Why can we not usually identify just markups?
- Why do we need physical quantities, not just prices?
- Does any of this relate to inflation? nber.org/papers/w32871 Parts I liked: simple derivation of the Bond et al result that DEU markups equal 1.

🚨 DOJ v. Google 🚨

- Court finds that Google has monopoly power in two relevant markets

- Distribution agreements found to be anticompetitive and in violation of Section 2 of the Sherman Act

- Remedies to come
storage.courtlistener.com/recap/gov.usco… Lots of initial reactions. I'll drop them here.

First, sooo many references to behavioral economics ideas. Unfortunately, there is no discussion of how this interacts with the competition.

Odd Lots + price discrimination = I had to listen right away.

As the episode makes clear, a lot of this is experimental. We are in a new era of pricing. Absolutely.

Let me give some reasons for a little less doom and gloom out of that experimentation.

https://twitter.com/TheStalwart/status/1797542843470508220

Price discrimination works by decreasing the price of the marginal units.

Think of a coupon that convinces you to buy an extra unit or buy a product you wouldn't otherwise buy.

This can mean (and generally does) that the price for the non-coupon users can be raised.

Did you know DOJ is suing Apple? You did? Okay.

Well, there's a lot of talk comparing the Apple antitrust case to Microsoft back in the day.

What were the effects of the Microsoft lawsuit? There's an important paper you should know 🧵 Thatchenkery & Katila (2023) ran a super interesting analysis on the actual effects of the Microsoft case.

They used a nifty empirical approach that could tell us a lot about what might go down with Apple.

Published paper:
WP: onlinelibrary.wiley.com/doi/abs/10.100…
mackinstitute.wharton.upenn.edu/wp-content/upl…

Two major macro trends over 40 years:

1. Rising markups 📈
2. Falling business dynamism 📉

Are these related? Many economists say so.

@UpdatedPriors and I have a new @federalreserve FEDS Note where we look sector by sector.

What do we find? 🧵
While aggregate trends show rising markups coinciding with declining dynamism, industry-level patterns go in the opposite direction.

More markup growth correlates with a smaller fall in dynamism. Opposite the time series!

"[Neoliberalism] brought back fairies and all these pre-Enlightenment beliefs in the form of "magical markets" and "market forces." These are not things that exist in the real world."- Barry Lynn

As someone who writes Economic Forces, let me clarify 👇
1. If it wasn't clear when economists say economic forces, we don't think they are actual forces. It's an analogy, just like "power".

2. Are markets magical? I don't think I've used that term, but I could see it. Technology is magical, too, for many people. Again, an analogy.

FINAL MERGER GUIDELINES ARE HERE!

Quick thread on some of what has changed.

I'll keep editorializing til the end or another thread. Here's the press release.

First, can I say that my birthday is a very not cool day to drop this?
ftc.gov/news-events/ne…

In 1984, F.A. Hayek was asked who his favorite economist was. He named two.

The first was Nobel Prize winner George Stigler. The second, sadly, never got the recognition he deserved.

Here are 5 papers by the 🐐, Armen Alchian, and why you should read them today 👇 Most grad students today never hear the name Alchian. That's a shame!

He made foundational contributions to so many fields like property rights economics, the theory of the firm and monetary economics.

That's why he's the GOAT. economicforces.xyz/p/why-armen-al…

To no one's surprise, the Nobel Prize goes to Claudia Goldin

Here are 3 things from her to start your dive into her work: One of the things that makes it difficult to jump into Claudia's work is that there really isn't ONE paper. It's a body of work built over decades.

Contrast this with last year's prize, which was literally for one model of bank runs.

We've known @linakhanFTC wanted to rewrite US antitrust since she first took office. (Actually, since she was in law school). So far, she's struck out.

Today's new draft FTC/DOJ guidelines reveal her vision on mergers.

If taken seriously, they will set antitrust back decades 🧵 First, what are the merger guidelines?

The rule of law requires that people know beforehand whether something is legal or not. A speed-limit sign tells drivers the rules of the road. 🚦

The merger guidelines give a signal to businesses what the FTC/DOJ will challenge in court.

A Short Course on How To Understand Inflation

Economic Forces Edition 🧵 Lesson #1: Our intuitions are often faulty when thinking about inflation.

You cannot ask people why they are raising prices. People don't know. Don't overinterpret what CEOs say as evidence.

You need *economic theory* to make sense of cause and effect. economicforces.xyz/p/dont-ask-peo…

I didn't study econ in undergrad.

One Friday, I picked up Thomas Sowell’s Basic Economics. On Sunday, I told a friend that I was going to be an economist.

After reading Knowledge and Decisions, I was 💯% hooked.

Why You Should Read More Thomas Sowell
economicforces.xyz/p/why-you-shou… Basic Economics hammers home the central idea of economics: everything is about trade-offs because of constraints.

Knowledge and Decisions focuses on the "most severe constraints facing human beings in all societies and throughout history—inadequate knowledge"

I agree. Price controls would stop inflation faster.

Guess what? They're still a terrible idea for all the standard reasons: reduced supply, the deadweight loss from waiting in line, I mean, queuing.

The policy goal isn't to limit inflation by any means necessary. Tradeoffs! The Bank of England has only raised rates to 4.5%, which is lower than pre-financial crisis rates when we didn't have inflation.

Real interest rates are still negative. Let's not imagined they turned it up to 11.

The reason? The BofE, unlike the Guardian, recognizes tradeoffs.

Why are groceries expensive?

The NYT ran a piece that blames the failure to enforce the Robinson-Patman Act for rising food prices.

Anytime you see a piece connecting antitrust to inflation, you know it's going to be a stretch 🧵 Before we get to the RPA, the op-ed starts with "To understand why grocery prices are way up, we need to look past the headlines about inflation." I agree.

But we should look at some DATA, not just stories about 1 grocery store that would be bad for nearby people if it closed.

As a big fan of price discrimination (and not a fan of the Robinson-Patman Act), let me briefly explain why.

In short, our intuitions about the harms to consumers of price discrimination from the monopoly case don't extend to more firms washingtonpost.com/made-by-histor… Take a simple example.

Suppose there are three types of consumers. Those willing to pay a dollar for A's product (loyal to A), those willing to pay a dollar for B's (loyal to B), and those willing to purchase either (bargain shopper)

What does it mean to have a "theory of inflation," generally or for a specific episode?

Recent conversations have made clear there is a disconnect on this point. Quick 🧵 I don't want to get into semantic disputes, but a theory of inflation should be *causal*.

A causes inflation generally. B caused inflation here. At the heart of causation is the counterfactual. If X had been different, then Y would have been different.

Experimental variation.

Why would OpenAI's CEO call for more AI regulation?

But my AP history book told me regulation came from advocacy groups over the complaints of businesses!

I'm kidding, but it is always a good time to reteach supply and demand 🧵 There are two things to remember. First, prices are pinned down by marginal costs in the industry. Profits are determined by average costs.

Even if all firms are identical, if you can raise marginal costs more than average costs, you can increase industry-wide profits.

Economists are often personally crotchety.

But when we look out at the world, I’d say we’re generally optimistic.

It follows from our basic assumption that people respond to incentives. A quick🧵 Many non-economists see the world as fighting over a fixed pie but economists recognize people can respond by increasing the pie.

To take a simple example, if there is a hurricane and people need generators. The price of generators rises. That’s terrible!