Is Antitrust's Consumer Welfare Principle Imperiled?

Abstract

Antitrust’s consumer welfare (CW) principle urges that antitrust policy should encourage markets to produce output as high as is consistent with sustainable competition, and prices that are accordingly as low. The CW principle is redistributive, although not necessarily in the same way as other legislative redistribution policies. It favors consumers, sometimes even at the expense of technical efficiency, although only when the favored policy results in higher output. It does not overtly redistribute wealth between rich and poor, capital and labor, or other interest groups. The CW policy does not protect every interest group. For example, it opposes the interests of cartels or other competition-limiting associations who profit from lower output and higher prices. It also harms less competitive firms that need higher prices in order to survive. Market structure is relevant to antitrust policy, but its importance is contingent rather than absolute – that is, market structure is a concern when it facilitates reduced output or innovation or leads to higher prices.

The CW principle is currently navigating between two hazards, both of which threaten the importance of high output and low prices as an antitrust goal. On the right is a general welfare approach best identified with Robert Bork that would permit efficiency claims as an antitrust defense even when the challenged practice reduces output and causes consumer harm. On the left is an emergent “neo-Brandeisian” approach that often regards low prices as the enemy, at least when they come from large firms at the expense of higher cost rivals.

In both cases, the full story is more complex. The general welfare approach as Robert Bork presented it was built on a strong faith that various practices produced cost savings or other efficiencies, whether provable or not, as well as considerable doubt that a large menu of practices caused genuine competitive harm. In the process it also approved an approach to antitrust that was very difficult to administer and underdeterrent over a wide range of practices.

By contrast, a central claim of the Neo-Brandeis approach is that markets are fragile, threatening monopoly nearly everywhere. Further, antitrust policy should be driven more by political theory rather than economics. While political voices are diverse, making it difficult to identify a single theme, one clear consequence is greater protection for small businesses with higher costs. For example, they point with admiration to one of antitrust’s greatest acknowledged disasters, the Robinson-Patman Act.

One serious problem facing the neo-Brandeis movement is lack of transparency. The attack on low prices as a central antitrust goal will harm consumers, and vulnerable consumers are most at risk. Politicians who embrace its concerns are likely to be harming their own constituencies, and that could spell political suicide.

Much of the debate about the appropriate role of antitrust in the economy comes down to identifying the driver behind firm size. Why do firms become large? For the neo-Brandeis movement, just as for the progressive critique a century earlier, the driver was politics and lax legal policy, including deficient antitrust enforcement. For more centrist antitrust, the principal driver has been technology and innovations in distribution – although coupled with a certain amount of anticompetitive conduct.

Keywords: antitrust, general welfare, consumer welfare, economics, political theory, Brandeis, hipster antitrust