Monday, January 23, 2006


Market efficiency (and all of the associated benefits) hinge on the rule of law. Trouble is that the making of law is often politicized and that works against market efficiency. This is the catchiest of Catch-22s, one that has driven many smart people (including James Buchanan) to contemplate desirable Constitutional amendments.

Writing in the latest Regulation, Daniel A. Crane elaborates "The Perverse Effects of Predatory Law". His point is that the law should not get in the way of competition that actually lowers prices. In fact, legal rulings that challenge alleged predatory pricing usually preserve a high-price status quo.

Crane's summary makes perfect sense. Yet it is up against anti-competitive coalitions made up of all the usual suspects, including those who gave us "... advances in game theory and behavioral economics ..." (Crane, p.26).