Commission Staff Research Articles

An Overview of Transparency at the Federal Trade Commission: Generalities and Innovations in Merger Analysis - Updated

This paper presents an overview of sixteen papers in the informal Transparency Project, a comprehensive study of the Federal Trade Commission’s merger files that grew out of the 2004 Horizontal Merger Investigation data release. Analysis is presented for market definition, structure, competitive effects, entry, and efficiencies. Most of the papers follow the same basic structure; they introduce an issue related to the Merger Guidelines, review the files and generalize from the results. Commission staff appears to apply a wide range of models to evaluate mergers. Of particular interest are the innovations in merger analysis, including, but not limited too, the concept of a significant competitor, the use of evidence to test structural models and the application of Net Present Value to entry analysis. .

Understanding long-term corrosion of Alloy 22 container in the potential Yucca Mountain repository for high-level nuclear waste disposal

Alloy 22 (Ni–22Cr–13Mo–3W–4Fe) is the candidate material for the waste package outer container in a potential geologic repository for high-level nuclear waste disposal at Yucca Mountain, Nevada. This alloy exhibits very low corrosion rates in the absence of environmental conditions promoting crevice corrosion. However, there are uncertainties regarding Alloy 22’s corrosion performance when general corrosion rates and susceptibility to crevice corrosion are extrapolated to a geological time period (e.g. 10 5 years). This paper presents an analysis of available literature information relevant to the long-term extrapolation of general corrosion processes and the crevice corrosion behavior of Alloy 22, under potential repository environments. For assessment of general corrosion rates, potential degradation processes causing the loss of the long-term persistence of passive film formed are considered. For crevice corrosion, induction time, and the extent of susceptibility and opening area, are considered. Disclaimer: The US Nuclear Regulatory Commission (NRC) staff views expressed herein are preliminary and do not constitute a final judgment or determination of the matters addressed nor of the acceptability of a license application for a geologic repository at Yucca Mountain. The paper describes work performed by the Center for Nuclear Waste Regulatory Analyses (CNWRA) for NRC under Contract Number NRC-02-02-012. The activities reported here were performed by CNWRA on behalf of the NRC office of Nuclear Material Safety and Safeguards, Division of High Level Waste Repository Safety. This paper is an independent product of the CNWRA and does not necessarily reflect the view or regulatory position of the NRC.

Vertical Antitrust Policy as a Problem of Inference: The Response of the American Antitrust Institute

This paper offers a critique of a recent paper on vertical restraints by four Federal Trade Commission staff members. The FTC staff based much of their analysis on a survey of 22 previously published case studies. We argue that the sample of 22 is biased toward cases in which vertical restraints had benign effects and show that, even in that biased sample, there were more anti-consumer effects than the paper authors imply. We then review several other important cases in which vertical restraints clearly reduced economic efficiency and/or injured consumers. We conclude from this analysis that the rule of reason approach should be continued and articulate some indicia that need to be considered in choosing cases for enforcement.

Need of a coherent Minerals policy in Europe – Present Discussions and Approaches

The paper summarizes some of the relevant (mineral policy) issues of the "Commission Staff Working Document – Analysis of the competitiveness of the non-energy extractive industry in the EU" (SEC (2007) 771). It underlines the necessary for developing and promoting of a coherent EU-level minerals policy framework within the Commission and the member states can work. As many stakeholders consider the access to minerals as the key challenge for the European extractive industry the focus of the paper is laid on this issue.

Men Not at Work: An Analysis of Men Outside the Labour Force

The Productivity Commission Staff Working Paper, 'Men not at Work: An Analysis of Men Outside the Workforce' (by Ralph Lattimore), was released in January 2007. This paper analyses the characteristics of adult men outside the labour force in Australia. The paper finds that, in contrast to women, the rates at which men are disengaged from the labour force have increased fourfold over the past century, rising especially rapidly over the last 50 years. There are many drivers of this transformation of the Australian labour market. Some of it is due to: population ageing; younger men are spending longer in education; older men are enjoying a longer voluntary retirement; and men are now much more involved in domestic and childcare tasks - 30 per cent of those aged 35 to 44 years are not in the labour force for this reason. Many prime-aged males leave the labour market due to injury, ill-health, disability or premature 'retirement'. About half the men aged 25 to 64 years who are outside the labour force receive the Disability Support Pension. Inactive men are more likely to be living alone, be poorly educated, and of indigenous or non-English speaking migrant background. A man aged 45 to 54 years living alone is about four times more likely to be outside the labour force than one who is married or who has a partner. The paper does not make any recommendations, but the research should assist policy development in areas central to getting more men into or back into the workforce. The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.

Credit Rating Agencies in Capital Markets: A Review of Research Evidence on Selected Criticisms of the Agencies

This study assesses the validity of widespread criticisms of the large, “nationally recognized” credit rating agencies (CRAs). The accounting scandals of 2000-02, in particular the highly publicized failure of Enron in December 2001, led many to question their competence and the value of their ratings. This paper evaluates important criticisms of the CRAs discussed in a recent Securities and Exchange Commission (SEC) staff report by using evidence from empirical research studies, and suggests many promising subjects for future research. The analysis given in this paper, and the results of the suggested research (when available), should be of particular interest to lawmakers and regulators who are responsible for determining whether and to what extent the credit rating industry should be subject to statutory and regulatory oversight. Although little rigorously gathered empirical evidence supports the criticisms, many issues remain unresolved. Powerful tests related to potential conflicts of interest and alleged unfair practices are exceptionally difficult to design, and the alleged deficiencies of rating agencies' disclosure practices have yet to be analyzed. Finally, many criticisms are based on subjective benchmarks that are difficult to quantify and open to question. To date, however, accounting researchers have played only a minor role in the debate. Because they are well-versed in such areas as disclosure analysis, capital market tests, and the operation of financial intermediaries and external auditors, these researchers potentially have much to add in this regard.

Radial System Reconfiguration to Minimize Operating Costs in Markets

The operating cost of a radial distribution system may be minimized by reducing the amount of real power and reactive power drawn from the transmission system. Presently, real power is being priced through a market clearing scheme all over North America. Reactive power is an ancillary service and its supply would be priced appropriately in the near future through a clearing market structure. A recent US Federal Energy Regulatory Commission staff report [1] has initiated a discussion on the formulation of a reactive power market. When such a market is designed and operated, large customers (distribution corporations) will have to purchase reactive power along with real power from the transmission corporation through an independent system operator. Envisaging such a prospect, this paper proposes a new method of reconfiguring radial systems considering costs of real and reactive power while maintaining an appropriate voltage profile and level of reliable power supply. The proposed method is tested on sample test systems and reported.

Organizational and Managerial Structures, Financing and Other Elements of the Port System of Slovenia

The article gives a presentation of the port system of theRepublicof Slovenia and of the organizational, ownership andmanagerial structure of Slovenia's only cargo port in Koper.The analysis of the organizational, ownership and managerialstructure was carried out according to the methodology appliedin the European project entitled 'Commission Staff WorkingProject on Public Financing and Charging Practices in theCommunity Sea Port Sector'. The article performs a compara·tive analysis of the port of Koper with other ports of the EU inthe domain of organization, ownership and management, publicfinancing, accountancy monitoring of public money investedin the port infrastructure, principles of cost recovery ofinvested capital and possibilities of access of port operators tothe port infrastructure of the Slovenian cargo port. The articlepoints to the possibilities of ownership and managementchanges in the port of Koper.

LOCA frequency evaluation using expert elicitation

The double-ended-guillotine break (DEGB) criterion of the largest primary piping system in the plant, which generally provides the limiting condition for the emergency core cooling system requirements, is widely recognized as an extremely unlikely event. As a result, US Nuclear Regulatory Commission (NRC) staff are currently considering a risk-informed revision of the design-basis break size requirements for commercial nuclear power plants. In support of this effort, loss-of-coolant accident (LOCA) frequency estimates have been developed using an expert elicitation process by consolidating service history data and insights from probabilistic fracture mechanics (PFM) studies with knowledge of plant design, operation, and material performance. Baseline LOCA frequency estimates for the 5th percentile, median, mean and 95th percentile were determined from each panelist's elicitation responses. Group estimates were determined by aggregating the individual estimates using the geometric mean of the individual estimates for each frequency parameter. Group variability was estimated by calculating 95% confidence bounds for each of the group frequency parameters (i.e., median, mean, and 5th and 95th percentiles). A number of sensitivity analyses were conducted to examine the effects on the quantitative results from varying the assumptions, structure and techniques of the baseline analysis procedure.

Good literature and bad history: The 9/11 commission's tale of strategic intelligence

Uncritical acceptance of the findings of the 9/11 Commission has obscured how the commission intentionally misrepresented pre-attack strategic intelligence on the threat from Al Qaeda. The commission staff used such techniques as highly selective use of material, partial truths, irrelevant references, plays on words, quotations out of context, and suggestive language leading to false inferences to portray as weak what had been a strong strategic analytical performance. The commission's misrepresentation corrupted history, damaged public understanding of the role of intelligence in counterterrorism, and helped to build support for a reorganization scheme that has made US counterterrorist intelligence worse rather than better.

President Nixon on Problems of Population Growth

By the official estimate of the US Census Bureau, America's population crossed the 300 million mark on 17 October 2006. That day, although obviously bracketed by a generous error‐term, was, unsurprisingly, occasion in the media for an outpouring of descriptions of the country's demographic path from the last similar benchmark 39 years earlier, when the US population reached 200 million. Projections for continued rapid population growth in the future were also matter‐of‐factly presented—an expected 400 million by 2043 with no stop in sight beyond that.In the press, influential editorial opinion about the meaning and significance of the event was generally upbeat and self‐congratulatory. The New York Times, for example, reminded its readers that “In America, growth and vitality are the same thing…. Our teeming immensity keeps us from growing stale.” Readers who might question that sentiment were reassured that “population issues have mysterious ways of working themselves out.”The Wall Street Journal's editorial page observed that the US population could comfortably be housed in the State of Texas (two acres for every US family of four), leaving the rest of the country deserted. On 17 October, the White House issued a presidential statement to “celebrate a significant milestone.” The closing sentences of its two short paragraphs convey the substance of its message: “Our continued growth is a testament to our country's dynamism and a reminder that America's greatest asset is our people.”“We welcome this milestone as further proof that the American Dream remains as bright and hopeful as ever.”This celebratory welcome to the arrival of the 300 millionth American is in remarkable contrast to the somber national soul‐searching that followed the crossing of the 200 million benchmark in 1967. In the context of the unprecedented pace of global population growth and reflecting the shock of the unanticipated US baby boom, the desirability of indefinitely sustained US population growth was then commonly viewed as far from obvious: certainly it was seen as an issue calling for careful examination and analysis. The demand for assessing the national interest in this matter was articulated and given a major impetus by a Message to Congress issued by then President Richard M. Nixon on 18 July 1969. The full text of this document is reprinted below. Drafted by the late Daniel Patrick Moynihan, then Counselor to the President (later US Senator from New York State), the message was primarily devoted to consideration of US population issues. It raised questions about the effects of the next 100 million Americans, expected “by the year 2000 or shortly thereafter,” on the economy and society. Those questions, it stressed, must be answered with a new sense of urgency. “Perhaps the most dangerous element in the present situation is the fact that so few people are examining these questions from the viewpoint of the whole society.” The message suggested that the Federal Government has “a special responsibility for defining these problems and for stimulating thoughtful responses.”To assemble those responses, the President proposed the “creation by Congress of a Commission on Population Growth and the American Future.” In the following years the resulting Commission, chaired by John D. Rockefeller 3rd and with Charles F. Westoff of Princeton University serving as Executive Director of the Commission's staff, carried out a thorough examination of the issues surrounding US population growth. The seven hefty volumes in which its findings and supporting documents were published are quintessentially summarized in Rockefeller's letter of transmittal of the Commission's Final Report to the President and Congress of the United States on 27 March 1972: “After two years of concentrated effort, we have concluded that, in the long run, no substantial benefits will result from further growth of the Nation's population, rather that the gradual stabilization of our population through voluntary means would contribute significantly to the Nation's ability to solve its problems. We have looked for, and have not found, any convincing economic argument for continued population growth. The health of our country does not depend on it, nor does the vitality of business nor the welfare of the average person.” Notwithstanding the urgency accorded the matter in his message, Nixon ignored the recommendations of the Commission.

The Institutions Involved in EC Antitrust Enforcement under Regulation 1 and the Green Paper on Damages Actions - An Overview, Critique and Outlook

This article critically evaluates advantages and, in particular, possible drawbacks Reg. 1/2003 has implied for the various institutions involved in EC competition law enforcement by separately analyzing their roles within the framework. Starting with a brief outline of the distinctive features of Regulation 1/2003 as opposed to its predecessor, Section 3 considers the effects of the new framework in regard to each institution in detail. The current step of the decentralization process, focuses on a more challenging task: a better integration of private parties in the enforcement framework. Shortly after the enactment of Reg. 1, the Commission issued a Study on the conditions for damages claims and a Green Paper. Taking up the Commissions' current focus, the paper analyses the pressure towards private enforcement in its second part, by outlining the rationales behind, the status quo and the obstacles to an enhanced integration of private parties. Two conclusions are drawn: First, it is argued that, notwithstanding new concerns and challenges, Regulation 1 has to be regarded as a cornerstone of competition law enforcement, breathing life into dead capital. Second, the achievement of a satisfactory level of private enforcement presents a keener challenge than the Commission might admit. The necessary substantial and structural changes of member states' civil and civil proceeding laws as apparently indicated in the Commission's Green and Staff Working paper will require increasing effort as member states are not likely to agree with profound interferences contrary to their current tort laws easily and without reservations.

The Imperative of 480 Schools

In 1969 Governor Rockefeller and the New York State Board of Regents appointed the New York State Commission on the Quality, Cost, and Financing of Elementary and Secondary Education to study and make recommendations on the quality, organization, governance, cost, and financing of education in New York State (1973). The commission, called the Fleischmann Commission (after its chair, Manly Fleischmann), included eighteen commissioners and about twenty professional staff and was advised by over 130 consultants who produced more than sixty reports. Incidentally, the commission staff and consultants included three American Education Finance Association presidents—Charles Benson(commissionstaffdirector),WalterGarms(consultant), and Jim Guthrie (deputy staff director)—as well as AEFA members, including Hank Levin. It also included economists, political scientists, sociologists, practitioners, and others studying education finance who had not been affiliated with AEFA. When completed in 1972, the commission’s three-volume report, totaling more than 1,200 pages, was the most thorough examination of the state of knowledge of education finance performed to date. Why subject you to this education finance trivia? Blue-ribbon education finance commissions often draw on an unusual mix of academics, policy makers, and practitioners with diverse backgrounds. The mix is unusual because these are groups that often do not talk with each other. Sociologists, economists, political scientists, and lawyers infrequently exchange ideas, and

Commission Staff Working Document: Report on the Activities of the EU Joint Transfer Pricing Forum in the Field of Documentation Requirements Report prepared by the EU Joint Transfer Pricing Forum

Commission Staff Working Document: Report on the Activities of the EU Joint Transfer Pricing Forum in the Field of Documentation Requirements Report prepared by the EU Joint Transfer Pricing Forum

The Armington Model

A Productivity Commission Staff Working Paper, The Armington Model, by Peter Lloyd and Xiao-guang Zhang was released on 8 February 2006, in conjunction with an additional staff working paper, Armington Elasticities and Terms of Trade Effects in Global CGE Models. The paper explores how models adopting the Armington formulation differ from traditional models, in their quantitative properties and underlying theory of trade. In publishing its research in this area, the Commission hopes to clarify issues that arise as single-country and global trade models are increasingly used to assess the potential impacts of various types of trade liberalisation. The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.

Economic Models and the Merger Guidelines: A Case Study

Merger analysis is a field in which economic theory is systematically applied, day-in, day-out. Economics structures the definition of the relevant market, and then economics drives the evaluation of the likely competitive effect of the merger. Exactly which models are used by Federal Trade Commission staff would be of great interest to the stake-holder community, as would any details on how the models are applied. This paper provides those details with an in-depth study of the FTC merger review process focused on single market horizontal mergers evaluated between 1993 and 2003. Five different market models are identified with a homogeneous goods analysis (two choices) useful in about one-third of the cases and a differentiated goods analysis (three choices) relevant for the others. Unilateral effects analysis was used in slightly more than half of the cases and coordinated interaction theories in just less than half. Evidence contained in hot documents, validated customer concerns and event analyses appears to play an important role in confirming the implications of Guidelines-based theoretical models of a merger’s competitive effect.

The U.S. Commission on Ocean Policy: An Historical Overview (1997-2005)

witnessed by about 20 members of the administration, including cabinet secretaries and White House and agency officials. Later that day the Commission delivered its report to Senators Earnest Hollings and Ted Stevens, the leading proponents for ocean policy reform in the U.S. Senate. These actions culminated a three-year comprehensive study into virtually all aspects of U.S. ocean policy. In the view of Commissioners, commission staff and advisors, and all the people who participated in and followed the Commission’s work, this was a very important moment. Thirty-five years had passed since the Stratton Commission issued its influential report in 1969 2 and now the U.S. had a new “blueprint” for its ocean affairs for the next decades. 3 The purpose of this article is to begin to describe the history of the Commission’s work. The assumption is that the Commission’s report will influence measurably how the U.S. approaches its ocean and coastal resources, and for this reason it is important to document the Commission and its work. The Commission went out of business officially on December 19, 2004, and the work of implementation passed to others. Part IV of this article shows how federal and state actions have already begun in response to the recommendations of the report. There are many dimensions to this story ‐ historical, legislative, and political. Prior to the initiation of the Commission’s work there was a considerable literature outlining ocean and coastal

Economic Models in Merger Analysis: A Case Study of the Merger Guidelines

Merger analysis is a field in which economic theory is systematically applied, day-in, day-out. Economics structures the definition of the relevant market, and then economics drives the evaluation of the likely competitive effect of the merger. Exactly which models appear to be used by Federal Trade Commission staff would be of great interest to the stake-holder community, as would any details on how the models are applied. This paper provides this information with an in-depth study of the merger review process focused on 124 single market horizontal mergers evaluated between FY 1993 and 2003. Five different market models are identified with a homogenous goods analysis (two choices) useful in about one-third of the cases and a differentiated goods analysis (three choices) relevant for the others. Within the relevant markets, unilateral effects analysis was used in slightly more than half of the cases and coordinated interaction theories in just less than half. The unilateral analyses generally applied a head-to-head model of competition, while the coordinated interaction cases utilized three different models of collusion. The outcomes of the Guidelines-based theories are then matched with other evidence of the likely competitive effect. Evidence contained in hot documents, validated customer concerns and event studies appear to play an important role in confirming Guidelines-based theoretical predictions for the competitive effect of a proposed merger.

Le contrôle de la discrimination raciale au Canada

This article is divided into four parts: the first is a brief survey of race relations in Canada before the enactment of anti-discrimination legislation; the next two parts are devoted to an outline of the scope of this legislation and of the administration and enforcement of it ; finally, the last part suggests some current and possible future developments to make it more effective. Prior to the nineteenth century both the French and the British settlers in the colonies that have become a part of Canada had slaves. Slavery was not, however, very extensive due to lack of large agricultural holdings. At the end of the eighteenth century the legislature in Upper Canada and some judges in Lower Canada limited its expansion and helped to end its practice. The British Imperial Emancipation Act of 1833 brought it to an end. In the next few decades, up to the American Civil War, some Canadians helped run-away slaves from the slave-holding states in the United States, while others actively discouraged them from coming. By the end of the nineteenth century a new source of racial tension arose on the West Coast between the newer immigrants from Asia and the older immigrants from Europe. The result was the enactment of numerous discriminatory laws by the legislature of British Columbia and subsequently, on a lesser scale, by the other western provinces. Most of these remained on the statute books until after World War II. None of these laws were held invalid by the courts on the basis of their discriminatory nature. In addition, both the common law and the Civil Code were interpreted as not prohibiting private discrimination, except by hotel-keepers and common carriers. The change from this situation started in the I930's with a few specific legislative prohibitions of discrimination in specific instances. In the 1940's Ontario, with respect to signs and advertisements and Saskatchewan, with respect to a whole range of activities, enacted legislation prohibiting discrimination, enforcing their prohibitions with penal sanctions. The 1950's saw the introduction of fair employment and fair accommodation practices acts. By the I960's these were being consolidated into comprehensive human rights codes administered by human rights commissions. This trend has continued up to this year, with the result that all eleven jurisdictions have commissions charged with enforcing antidiscrimination codes or acts. The usual, but not invariable, procedure is the laying of a complaint, the investigation of it by the commission staff, an attempt to bring about a settlement and finally, failing that, a hearing before an adjudicative tribunal to determine whether an act of discrimination did occur and, if so, what redress is appropriate. In concluding, three suggestions are made regarding measures that could be taken to strengthen the effectiveness of anti-discrimination legislation: (I) contract compliance; (2) greater independence for the commissions from the government; and (3) giving the legislation paramountcy over other statutes.

Responsiveness of Demand for Irrigation Water: A Focus on the Southern Murray-Darling Basin

The Productivity Commission staff working paper, 'Responsiveness of Demand for Irrigation Water: A Focus on the Southern Murray-Darling Basin', was released August 2004. This paper explores the determinants of the elasticity of demand for irrigation water. It focuses on three main irrigated industries - rice, dairy and horticulture - to gain a greater understanding of the value that farmers place on water as an input. This paper provides detail relating to farm decision behaviour and biophysical production realities faced by irrigators in the southern Murray-Darling Basin. The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.