The Slogans and Goals of Antitrust Law

Abstract

Three popular attempts to define the purpose of antitrust are the idea that it should be concerned with “bigness,” the somewhat more technical idea that its fundamental concern is the “competitive process,” and the currently dominant concern that it should promote some conception of welfare, most commonly termed “consumer welfare.”

“Bigness” as an antitrust concern, traditionally promoted by populists, targets firms based on absolute size rather than share of a market, as antitrust traditionally has done. The bigness approach entails that antitrust cannot be concerned about low prices, or the welfare of consumers and labor. Nondominant firms could not sustain very high prices or cause significant reductions in market output. Concerns about bigness as such almost always translate into protection of small business, or of firms dedicated to older distribution methods or technologies. These firms can be injured by even nondominant rivals who have lower costs or more innovative supply.

The most important advantage of an antitrust policy of protecting the “competitive process” is the phrase’s rhetorical appeal. It invokes a classical liberal bias that sees process rather than substance as the key to good public decision making. However, classical liberalism reaches that point by beginning with a few bedrock substantive starting points, including protection of contract, property rights, and due process. No equivalent bedrock exists for the “competitive process.” As a result, people from the right and the left embrace it, and it cannot produce useful tools for decision making about competition issues. It operates as a slogan, not a goal
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The history of antitrust welfare tests is rooted in neoclassical economics. Today, it is reflected in a “welfare tradeoff” model developed in the 1960s and later named “consumer welfare.” This model is often justified as mandated by antitrust’s statutory language and legislative history. The case law never mentioned consumer welfare as an antitrust concern prior to the late 1970s, however. Rather, it has been explicit from the start that antitrust's concern is protection from reduced market output and, concurrently, higher prices. Robert Bork did these tests severe damage by finding an increase in “consumer welfare” even from conduct that reduced output significantly and increased prices. The confusion that ensued has corrupted the debate over antitrust goals ever since. It explains at least part of the reason that so many people today regard consumer welfare tests as toothless, identified with higher margins and prices, and lack of competitiveness.
While many speak of “consumer welfare” as an antitrust goal, “welfare” is rarely what they measure. Rather, they estimate changes in output or changes in price. The best statement of a “welfare” test for antitrust is a policy of encouraging markets to produce maximum sustainable output. “Output” can be measured by quantity, quality, or unrestrained innovation.

Keywords: antitrust, bigness, competitive process, welfare, consumer welfare, output

JEL Classification: K21, L11, L41