Joe Bain and 'Junk Science'

[charles mueller <cmueller@metrolink.net>]

        A helpful addition to our discussion of Joe Bain's classical
empirical studies in the economics of antimonopoly policy (antitrust) is the
post below noting first that the central test of 'science' is that other
researchers can REPRODUCE the work in question.  Professor Bain, of course,
meets that test in spades:  "Regarding Joe Bain, his results have been
reproduced almost endlessly."  The monopolists, though, raise an issue of
interpretation:  Sure, with my 90% market share, I have higher profits but
that's because I'm more efficient, not because my PRICES are higher."
Right.  Check out the air fares offered at our monopoly hubs.

        Our problem is that we don't have a new generation of Joe Bains,
great empiricists to continue his pioneering work.  

        Charles Mueller, Editor
        ANTITRUST LAW & ECONOMICS REVIEW
        http://webpages.metrolink.net/~cmueller

                                             *************

One of the problems about the recent debate about "junk science" is a
failure to define terms.  I sometimes have the uncomfortable feeling that
the operating definition of  "junk science" is the opinion of the expert
opposing me in an adversarial proceeding.  (See for instance, the editorial
page column in the Wall Street Journal last year by Louise Woodward's (the
young English nanny accused and convicted of manslaughter) attorney
regarding the "junk science" of the prosecution.)  In fact, it is possible
to precisely define what "junk science" is.  Junk science is a research
finding which is NOT reproducible in by other researchers.  "Junk science"
is not scientific findings which have not been published in peer reviewed
journals.   Simply put, peer reviewed journals reflect the prevailing
orthodoxy (or paradigm) of a profession.  Since per Kuhn (The Structure of
Scientific Revolutions) major scientific breakthroughs are a product of
replacing an older flawed paradigm with one more in accord with the facts
on the ground, they are unlikely to be found in peer reviewed journal.

Regarding Joe Bain, his results have been reproduced almost endlessly.
What is more they passed the test of scientific orthodoxy by finding
publication in peer reviewed journals.  What became controversial in this
case is the interpretation to be placed on his results.  The Chicago School
pointed out correctly that there is no means to distinguish between high
profits and large size caused by superior efficiency and high profits
caused by large size and collusion.     In addition, the structure of the
American economy has changed in significant ways, in particular the much
greater role of imports in the goods sector, since Bain's work.  So the
science of economics moved on.

In particular, the late Leonard Weiss pointed out that the predictions
about the effects of limited numbers of firms in a market are limited to a
prediction that prices will be higher in concentrated markets than in
unconcentrated markets.  He wrote (actually co-authored) a book about it,
demonstrating conclusively that this is exactly what occurred.  Another
contribution to the same literature, Bresnahan and Reiss, "Entry and
Competition in Concentrated Markets, Journal of Political Economy (99:5,
pp. 977-1007, makes the same point:  The number of competitors matters for
prices.  Since prices matter for resource allocation, anything that reduces
the number of competitors is to be viewed extremely sceptically.
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