When the Econometrician Shrugged: Identifying and Plugging Gaps in the Consumer Welfare Standard

Abstract

Edge providers have alleged that dominant tech platforms exploit their platform power to gain an artificial advantage in some ancillary, edge market. In May 2018, Yelp filed a complaint at the European Commission, alleging that Google abused its dominance in local search by giving preferred placement to its own local search offerings over similarly situated rivals. Facebook has been accused of levering its platform power by appropriating the functionality of Snapchat (“Stories” feature), Timehop (“On This Day” feature), Grubhub (food delivery feature), and GoFundMe (fundraising feature). And Amazon has been accused of leveraging its platform power into retail via predation against independent retailers such as Diapers.com, and more recently by steering voice searches on Alexa to its private-label products. This paper does not take a view of the merits on any particular allegation, but instead explores how to address innovation-based theories of harm caused by gaps in antitrust’s consumer-welfare (“CW”) standard. A similar problem discussed in this paper leads to under-enforcement of monopsony-based theories of harm. As we argue below, innovation harms are beyond the scope of the CW standard and the capability of antitrust courts; to protect innovation, we need a new regulatory tool. Monopsony harms, another critical gap in the CW standard, are caused by a misunderstanding of the full implications of the meaning of consumer welfare; we argue the solution here lies not in changing the CW standard in theory, but instead in noting how the CW standard has at times been applied improperly.

Keywords: antitrust, innovation, monopsony, section 2, single-firm conduct, exclusionary, discrimination, tribunal

JEL Classification: K21, K23, L40, L42, L44, L50, L86