A Time Series Analysis of Department of Justice Antitrust Filings: Partisan Politics versus Public Choice Theory

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A Time Series Analysis ofDepartment of Justice
Antitrust FilingsPartisan Politics
versusPublic Choice Theory

• Tom Fomby and Dan Slottje
• Department of Economics
• SMU

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OUTLINEI. Posners Seminal
(1970) JLE PaperII. The DOJ Count DataIII.
Using Count Models Poisson Regression and
QML - Negative Binomial RegressionIV. The Core
Equations to adjust for trend and
autocorrelationV. Tests of Over/Under-Dispersion
VI. Empirical Analysis of CountsVII. A
Retrospective View of Posner (1970)VIII.
Conclusions
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Posners (1970) PaperA Statistical Study of
Antitrust Enforcement JLE

• Annual 1890 1969
• Hypotheses
• i.Size of Economy (GNP) ()
• ii. Size of Budget of Agency ()
• iii. Economic Contractions Scapegoat
  Hypothesis
• (Monopoly Causes Contractions) ()
• iv. Periods of War Antitrust could be
  divisive (-)
• v. Politics Party in White House ( -
  Republicans,
• Democrats)
• vi. Four Years Following Switch of
  Presidential Party (?)
• vi. Presidential Election Year ( ?)
• vii. Interactions between Economic and
  Political Factors
• All Informal Findings Were Negative (no
  association)

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Shortcomings of Posner Paper

• Relatively Short Data Span. Antitrust Policy has
  continued for 34 years hence.
• Statistical Analysis Very Informal. For example,
  he compared simple proportions heuristically and
  used no formal statistical tests. No analysis of
  trend and autocorrelation in data.
• Possibly the use of additional data and more
  sophisticated statistical methods could shed
  additional light on factors affecting antitrust
  activity of DOJ.

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DOJ DATA

• TOTAL FILINGS CRIMINAL CIVIL
• ANNUAL 1891- 2002
• SERIOUS FUNDING OF DOJ DID NOT BEGIN UNTIL 1925
• DATA SPAN WE CHOOSE TO ANALYZE IS 1925 2002

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GRAPH DOJ FILINGS
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DEPENDENT VARIABLES(COUNTS)

• TOTAL TOTAL NUMBER OF CASES
• CRIM CRIMINAL CASES
• CIVIL CIVIL CASES

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POLITICAL EXPLANATORY VARIABLES

• PARTY 1 if Republican, 0 if Democrat
• ELECTYR 1 if Presidential ElectionYear,
• 0 otherwise
• SWITCH 1 for First Four Years after
• Party Switch, 0 Otherwise

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ECONOMIC (PUBLIC CHOICE) EXPLANATORY VARIABLES

• DUNEMP First Difference of
• Unemployment Rate
• DINF96 Change in Inflation Rate (1996 dollars)
• ERI DUNEMP DINF96
• GDOJ96 Growth in DOJ budget (1996 dollars)
• GGNP96 Growth in GNP (1996 dollars)
• WAR 1 for War Year, 0 Otherwise
• RECESS 1 for negative growth year,
• 0 0therwise

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CORE EQUATIONSFOR TREND AND AUTOCORRELATION

• TOTAL f(C, TIME, TIME2, LOG(DOJFILE(-1)),
  LOG(DOJFILE(-2)))
• Q(12) 3.5232 (P 0.991)
• CRIM g(C, TIME, LOG(CRIM(-1)))
• Q(12) 9.7698 (P 0.636)
• CIVIL h(C, TIME, TIME2,
• LOG(CIVIL(-1)))
• Q(12) 3.5116 (P 0.991)

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TESTS FOROVER/UNDER-DISPERSION

• TOTAL Cameron and Trivedi (1990)
• t 2.758 (p 0.0073)
• Wooldridge (1997)
• t 2.563 (p 0.0123)
• QMLE parameter 0.043
• CRIM Cameron and Trivedi (1990)
• t 3.227 (p 0.0018)
• Wooldridge (1997)
• t 0.901 (p 0.3702)
• QMLE parameter 0.074
• CIVIL Cameron and Trivedi (1990)
• t 3.968 (p 0.0002)
• Wooldridge (1997)
• t 3.083 (p 0.0028)
• QMLE parameter 0.081

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PARTISAN POLITICSEQUATIONS
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PUBLIC CHOICEEQUATIONS
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RETROSPECTIVEPOSNER EQUATIONS
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CONCLUSIONS - I

• We analyze Total, Criminal, and Civil Antitrust
  filings by the Department of Justice over the
  years 1925 2002.
• We find that Partisan Politics (Party) doesnt
  seem to affect any of the filings of the DOJ. In
  other words, when it comes to Antitrust
  enforcement, Democrats and Republicans are alike
  in terms of their activism/passivity, other
  factors held constant.

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CONCLUSIONS - II

• Turnover in administrations doesnt appear to
  bring with it reactionary change vis-à-vis the
  previous administration. (Switch)
• Election year politics (Electyr) doesnt seem to
  affect the number of antitrust cases brought by
  the DOJ. That is, Antitrust activity of the
  Presidential election year appears to be no
  different than that of non-election years.

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CONCLUSIONS - III

• The impact of economic (Public Choice) variables
  on DOJ Antitrust activity comes through a select
  few variables and then only affects Total and
  Criminal filings and not Civil filings. Possibly
  Criminal cases have a higher profile than Civil
  cases and as a result are more important in
  conveying messages to the Public about the
  Administrations concern over economic variables
  of interest to the public.
• Evidently DOJ officials engage in Antitrust
  activity with a reticence that depends on the
  most recent changes in the unemployment rate and
  inflation rate. We measure this reticence with
  what we call the Economic Reticence Index (ERI
  dunemp dinf96).

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CONCLUSIONS - IV

• DOJ officials appear to be more reticent in
  engaging in Antitrust activity when unemployment
  is increasing (possibly in fear of creating more
  unemployment) and less reticent in bringing
  Antitrust cases when inflation is increasing
  (possibly thinking that inflation is being caused
  by monopoly power).
• There is tenuous evidence that DOJ officials may
  weigh unemployment somewhat more heavily than
  inflation when deciding on the vigor with which
  to pursue Antitrust activity.

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CONCLUSIONS - V

• Finally, we examine an interesting historical
  question. If Prof. (Judge) Posner had had, in
  1969, the econometric methodology of today, would
  he have found the same ERI effect that we found
  here? Or, even in the presence of advanced
  econometric methodology, would the limited span
  of the data he had available at the time have
  prevented him from finding any meaningful
  relationships at all as implied by the lack of
  associations he reported in his 1970 paper?
• A related question Do advanced econometric
  methods help steepen the learning curve in
  economics?

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CONCLUSIONS - VI

• In fact, if Prof. Posner had had the current
  econometric methodology available at the time he
  wrote his 1970 paper, he too would have found the
  ER effect (some 34 years earlier than this
  paper). To whit, yes, advanced econometric
  methodology, can help steepen the learning curve
  of economics.

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POSTSCRIPT
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COMPETING PARADIGMS

• Poisson Assumption
• Var(yx) E(yx) (1)
• Poisson GLM Variance Assumption
• Var(yx) (2)
• Negative Binomial Assumption
• Var(yx) E(yx) (3)
• Two-Step Negative Binomial QMLE
• Replace with

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• Neither (2) or (3) is more general than the
  other. In other words (2) is not encompassed by
  (3) or vice versa. It is difficult to compare
  Poisson QMLE and 2-step NB QMLE on efficiency
  grounds. Poisson QMLE is second order
  efficient in a neighborhood of .
  Practically speaking, this means that the Poisson
  QMLE is almost as asymptotically efficient as the
  2-step NB QMLE for small amounts of
  over-dispersion, .

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A NEW ARTICLEGhosal, Vivek and Gallo, Joseph
(2001)The Cyclical Behavior of the Department
of JusticesAntitrust Enforcement
Activity,International Journal of Industrial
Organization,Vol. 19, 27 54.

• Major Findings
• Antitrust Case Activity is Countercyclical
• (i.e. Weaker economy implies more cases
• stronger economy implies less cases.)
• Number of Cases positively affected by funding
• Political Affliation of President and Republican
• Vs. Democratic Composition of House and Senate
• Do not have clear impact on case activity

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• Differences
• Span of Data Annual 1955 1994
• Methodology Multiple Regression
• Cases f(c, t,
• EAM Economic Activity Measures
• SP 500, DOW, Profit, Profit/Income,
• Profit/Consumption, GDP, UN
• POL(1) Pres x Republications in House
  Senate
• POL(2) Pres x Repub in House xRepub in
  Senate