Consumer Surplus as the Appropriate Standard for Antitrust Enforcement
Russell W. Pittman
U.S. Department of Justice - Economic Analysis Group; New Economic School (NES)
Competition Policy International, Vol. 3, No. 2, Autumn 2007
In antitrust enforcement, in the context of cost-benefit analysis, neoclassical economics may be interpreted as arguing for the use of a total welfare standard whose implementation treats transfers as welfare-neutral. Several recent papers call for antitrust agencies to move in the direction of this version of a total welfare standard for enforcement. However, as Oliver Williamson noted in his 1968 paper, horizontal mergers typically result in transfers that may greatly exceed in magnitude any dead-weight loss or efficiency gain, so that a decision to ignore transfers may be quite important. In this paper, I argue that such transfers are likely overall to be quite regressive, and thus that a consumer surplus standard rather than a total welfare standard may be appropriate for antitrust. Two common arguments against this standard that most mergers are in markets for intermediate goods, and that a consumer welfare standard implies a tolerance for monopoly are examined and found wanting. I argue in addition that, even if a total welfare standard is used, both the finance literature on merger outcomes and the structure of the U.S. enforcement agencies suggest that the use of a consumer surplus standard by the agencies is more likely to achieve that goal.
Number of Pages in PDF File: 21
Keywords: antitrust, enforcement, welfare standards, consumer surplus, total welfare, horizontal mergers, competition law, competition policyAccepted Paper Series
Date posted: December 17, 2007
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