The Antitrust Case for Consumer Primacy in Corporate Governance

Abstract

Consumers have been left out of the great debate over the mission of the firm, in which advocates of shareholder value maximization face off against advocates of corporate social responsibility, who would allow management leeway to allocate profits to workers and other non-shareholder insiders of the firm. The consumer welfare standard adopted by antitrust law in the 1970s requires that the firm allocate its profits neither to shareholders nor to workers or other firm insiders. Instead, the standard requires that firms strive to have no profits at all, by charging the lowest possible prices for the best quality products. Such a profit minimization requirement, which, as federal law, binds all state-level corporate law regimes, preserves incentives for businesses to perform efficiently because any incentive payments necessary for efficiency count as costs, not profits, and can therefore be retained by firms. 

Keywords: Corporate Governance, Shareholder Primacy, Corporate Social Responsibility, Consumer Welfare, Antitrust, Agency Theory, Dodge v. Ford

JEL Classification: L21, L40