Debunking the Purchaser Welfare Account of Section 2 of the Sherman Act: How Harvard Brought Us a Total Welfare Standard and Why We Should Keep it
80 Pages Posted: 4 Oct 2010
Date Written: October 4, 2010
There is significant disagreement among antitrust scholars and practitioners about how to define “consumer welfare” when implementing Section 2 of the Sherman Act. Some equate consumer welfare with “total welfare,” that is, the welfare of all consumers. More recently, however, some have argued that courts should equate consumer welfare with the welfare of purchasers in the particular market served by the monopolist under scrutiny. Under this “purchaser welfare” approach, courts would ban conduct that reduces the welfare of such purchasers, even if the challenged practice on balance increases overall welfare. Proponents of the purchaser welfare standard claim that this approach is consistent with current law, and they attribute the competing total welfare standard exclusively to Robert Bork and other members of the Chicago School of antitrust analysis.
This article demonstrates that courts, particularly the Supreme Court, have embraced a total welfare approach when articulating and applying Section 2 doctrine. During antitrust’s formative era, courts created a safe harbor for so-called “normal” or “ordinary” conduct, regardless whether such conduct led to higher prices for purchasers. More recently, decisions such as Eastman Kodak v. Image Technical Services, Brooke Group v. Brown and Williamson Tobacco, and Aspen Skiing v. Aspen Highlands all announce and apply tests that immunize practices producing significant economic benefits, without regard to the impact such practices might have on purchaser prices. This doctrinal result, also endorsed by various lower courts, is most consistent with a total welfare standard, given the prediction by the partial equilibrium tradeoff model that non-trivial efficiencies resulting from a monopolist’s conduct will usually outweigh the deadweight loss caused by monopoly pricing and output reduction. While some opinions, notably the now-discredited Alcoa decision, rejected a total welfare approach, none embraced a “purchaser welfare” account of Section 2. In fact, courts have never made Section 2 liability turn on whether a monopolist’s conduct results in higher prices.
The modern commitment to total welfare is not a recent phenomenon associated with Robert Bork and the Chicago School. Instead, the Harvard School of antitrust policy, led by Edward Mason, Donald Turner, and Carl Kaysen embraced a total welfare approach to Section 2 doctrine in the decade before Bork advocated this standard. In particular, the Harvard School argued that so-called “competition on the merits,” including the realization of economies of scale, above-cost pricing and product innovation, should be lawful per se, without regard to whether such conduct excludes rivals and results in higher purchaser prices. The desire to protect competition on the merits and practices that further such competition reflected a more general Harvard School “total welfare” approach to the antitrust problems, an approach exemplified by Turner and Kaysen’s argument that mergers necessary to achieve significant efficiencies should be lawful, again without regard to price effects. The Supreme Court expressly endorsed the Harvard School’s definition of unlawful exclusionary conduct in Aspen Skiing, simultaneously embracing the definition articulated by Robert Bork.
To be sure, the Harvard and Chicago Schools sometimes disagree about the appropriate content of antitrust doctrine in the Section 2 context. However, such disagreement, when it occurs, reflects disparate evaluations of the economic impact of monopolists’ conduct, evaluations unrelated to the two schools’ common normative commitment to a total welfare standard. Those who advocate repudiation of this longstanding scholarly and judicial normative consensus bear a heavy burden of explaining why courts should suddenly reverse themselves and adopt the completely novel purchaser welfare standard, twelve decades after Congress passed the Sherman Act.
Keywords: Sherman Act, Monopolization, Consumer Welfare, Total Welfare, Purchaser Welfare, Harvard School, Chicago School
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