Has the Consumer Harm Standard Lost its Teeth?

45 Pages Posted: 30 Jan 2003

See all articles by Howard H. Chang

Howard H. Chang

Global Economics Group, LLC

David S. Evans

Global Economics Group; University College London

Richard Schmalensee

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: August 13, 2002

Abstract

There appears to be universal agreement that antitrust policy should "protect competition, not competitors" and that consumer welfare is the fundamental standard for evaluating competitive effects. There is considerable debate, however, about how to implement those principles in practice when evaluating rule-of-reason antitrust claims under the Sherman Act. The choice of an appropriate consumer harm necessarily involves a tradeoff between the risk of being so lenient that firms think they can get away with anticompetitive behavior and the risk of being so strict that the courts condemn practices that help consumers and thereby stifle the very competitive process the antitrust laws seek to protect. There is no way to eliminate both risks, and the courts and ultimately society need to choose how to minimize the expected costs of the inevitable errors.

The Clinton Administration, in cases brought against Intel, Microsoft, and Visa/MasterCard, asked the courts to use a consumer harm standard that relied on an inference of harm to consumers from harm to competitors. In the two cases that went to trial and for which there is a complete record U.S. v. Microsoft and U.S. v. Visa U.S.A. et al. the district court accepted this approach. We explore two important issues in inferring consumer harm from competitor harm. The first is what preconditions must hold for it to be valid to make this inference. We show in this paper that courts in both Microsoft and Visa did not require Clinton Administration antitrust enforcers to establish critical preconditions. The second important issue is whether a showing of substantial harm to consumers should be required for liability. The courts can reduce errors by requiring evidence that the challenged practices have caused, or are likely to cause, substantial harm to consumers. The Microsoft and Visa cases both demonstrate that this is a realistic evidentiary hurdle that could have been required of the plaintiffs. There were many studies plaintiffs could have done to demonstrate significant effects on consumers if in fact there were such effects.

Keywords: Consumer Harm, Welfare, Antitrust, Competition, Microsoft, Visa

JEL Classification: D4, L1, L4, L5

Suggested Citation

Chang, Howard H. and Evans, David S. and Schmalensee, Richard, Has the Consumer Harm Standard Lost its Teeth? (August 13, 2002). AEI-Brookings Joint Center Working Paper; MIT Sloan Working Paper No. 4263-02. Available at SSRN: https://ssrn.com/abstract=332021 or http://dx.doi.org/10.2139/ssrn.332021

Howard H. Chang

Global Economics Group, LLC ( email )

1400 S. Dearborn, Suite 400
Chicago, IL 60603
United States
312-533-4602 (Phone)

HOME PAGE: http://www.globaleconomicsgroup.com

David S. Evans (Contact Author)

Global Economics Group ( email )

111 Devonshire St.
Suite 900
Boston, MA 02108
United States

University College London ( email )

Gower St
London WC1E OEG, WC1E 6BT
United Kingdom

Richard Schmalensee

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Room E62-525
Cambridge, MA 02142
United States
617-253-2957 (Phone)
617-258-6617 (Fax)

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