The Output-Welfare Fallacy: A Modern Antitrust Paradox

53 Pages Posted: 23 Jun 2021 Last revised: 25 Aug 2021

See all articles by John M. Newman

John M. Newman

University of Miami - School of Law

Date Written: June 14, 2021

Abstract

A fallacy lies at the core of modern antitrust. The ascendance of the consumer welfare standard is a story often told. Yet existing narratives overlook the pivotal role that output has played--and continues to play--in shaping the contemporary antitrust enterprise. That role has gone unnoticed by most observers, but the antitrust orthodoxy correctly observes that output has become the "Holy Grail," the "touchstone," and the "sine qua non" of antitrust. Bork, Posner, Easterbrook, and their intellectual brethren uniformly insisted that output should be the exclusive criterion for analysis, a position premised on the assumption that output effects are a viable stand-in for welfare effects. This output–welfare framework entered mainstream discourse, was endorsed by leading scholars and enforcement authorities, and was outcome-determinative in the Supreme Court’s recent Ohio v. American Express opinion.

This Article undertakes the first systematic evaluation of the widely assumed link between output and welfare. Under sustained scrutiny, the outputist paradigm breaks down. A wide variety of antitrust-relevant conduct pushes output and welfare in opposite, conflicting, or disconnected directions. Moreover, output-based analysis is often unworkable in markets—for labor, social networking, online search, and more—that are of particular interest to contemporary antitrust.

Recognizing the Output–Welfare Fallacy offers substantial benefits for antitrust analysis. Outputist judicial decisions, which rest on a fundamental illogic, can safely be jettisoned. Market power can best be defined as the power to control competition, instead of power to profitably reduce output. Plaintiffs need not demonstrate an output reduction to carry the initial burden of proof. Conversely, defendants need not prove an output increase to make out a valid procompetitive justification. Moving beyond the narrow confines of output-based analysis thus enables the application of a more coherent, administrable, and efficient antitrust framework.

Keywords: antitrust, output, consumer welfare, law and economics, tying, monopolization, restraints of trade, anticompetitive effects, rule of reason, procompetitive justifications

JEL Classification: D21, D41, D42, D61, D62, K21, L4, L40, L41, L42, L43, L44

Suggested Citation

Newman, John M., The Output-Welfare Fallacy: A Modern Antitrust Paradox (June 14, 2021). Iowa Law Review, Vol. 107, No. 2, 2022 Forthcoming, University of Miami Legal Studies Research Paper No. 3866725, Available at SSRN: https://ssrn.com/abstract=3866725 or http://dx.doi.org/10.2139/ssrn.3866725

John M. Newman (Contact Author)

University of Miami - School of Law ( email )

P.O. Box 248087
Coral Gables, FL 33146
United States

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