David R. Henderson  

More on Kevin Murphy and the NBA

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On September 26, I wrote a blog post titled, "Note to David Stern and the NBA: Be Afraid; Be Very Afraid." In it, I noted that the NBA players' union had hired one of the smartest economists in the world, Kevin Murphy of the University of Chicago.

Then, on October 12, this article appeared. It affirms what I had said about how good Kevin Murphy is. One excerpt:

His [the union official's] answer was that their economist Kevin Murphy had the task of predicting how owners would spend under the last CBA, back when it was new. Looking back, they realize his work was, the official says, "pretty much perfect."

And:
So as the league comes up with a tax they say is not really a hard cap, they don't just have to convince players. They also have to convince that genius


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COMMENTS (5 to date)
mark writes:

I'll add a second real world endorsement. I ued Professor Murphy as an expert witness in a case and the other side settled immediately after he testified. They didn't even cross-examine him. They just asked for a recess after his direct testimony and settled.

Arthur_500 writes:

However, he may be the 'nuclear option.'

The US has a great nuclear arsenal and yet we couldn't use it in the jungles of Vietnam or the desert cities of Iraq. If we were to use nuclear arms in Afghanistan we couldn't tell the difference with before and after pictures. so why are we fighting in these places?

The reason is the nuclear option is not appropriate or effective in these situations. As a result we left Vietnam with our tail between our legs even though the North vietnamese were in violation of the Treaty. We had the best weapons and lost.

If the NBA does not play they risk losing most of what they have. They might have the best weapon but, really, who cares about the NBA? If they don't play no one will miss them.

They may have the best weapon and still shoot themselves in the foot.

Michael Strong writes:

Kevin Murphy may be analytically capable, but after his expert testimony on behalf of the FTC in the case against Whole Foods, I wonder about his commitment to broader economic principles. In this testimony, for instance,

http://www.ftc.gov/os/caselist/0710114/070823murphy.pdf

he argues that a 1-2% price change that is sustained for one to two years is to be regarded as monopolistic power, and on those grounds he concludes that the Whole Foods/Wild Oats merger has given Whole Foods too much market power, thereby justifying the FTC opposition to the merger.

While I assume that as a "hired gun," his analysis is fine, the notion that a 1-2% price change sustained for one to two years constitutes monopoly pricing that must be opposed by government is preposterous. By that standard, because Apple products receive a premium price in their category, Apple is a monopolist that must be attacked by the FTC. Any distinctive product whatsoever that charges any kind of premium is in the same situation.

Whole Foods is not even among the top ten grocery chains in the U.S. (It ranks 19th in 2011). How can the 19th-ranked grocery store be considered a "monopoly" power? Only if it is regarded as existing in a special category. From an Austrian perspective, as long as there are no barriers to entry there is no monopoly power wielded.

Most of the products carried by Whole Foods are carried by some other grocer, and all could be if another grocer wanted to carry them. Indeed, many product lines are started at Whole Foods and then, once they become established brands, are picked up by larger retailers. For instance Seventh Generation is a brand that established their reputation at Whole Foods over the past twenty years, and they've recently been picked up by Wal-mart, where their volume will be significantly larger than the volume they have sold through Whole Foods. And Whole Foods gets attacked by the FTC?

I sent Murphy's testimony to a free market entrepreneur who had studied at Chicago under Stigler, and who had loved the Chicago economics tradition. His response: "I must avert my eyes, this is too painful."

Full disclosure: the non-profit I run was co-founded by, and has received significant funding from, John Mackey. But i would be just as outraged by this as my Chicago friend. As someone who also studied at Chicago (under Becker), I feel just as disappointed.

David R. Henderson writes:

@mark,
Thanks. Great story.
@Michael Strong,
Thanks. Disappointing story.

mark writes:

After reading Michael Strong's comment, I must note that my case involved executive compensation issues and was perhaps closer to the NBA matters. Antitrust seems far outside his field.

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