Consumer Surplus as the Appropriate Standard for Antitrust Enforcement

Economic Analysis Group Discussion Paper No. 07-9

19 Pages Posted: 27 Jun 2007

See all articles by Russell W. Pittman

Russell W. Pittman

U.S. Department of Justice - Economic Analysis Group; Kyiv School of Economics; New Economic School (NES)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2007

Abstract

In antitrust enforcement as in cost-benefit analysis, neoclassical economics may be interpreted as arguing for the use of a "total welfare" standard whose implementation treats transfers as welfare-neutral. Several recent papers call for antitrust agencies to move in the direction of this version of a total welfare standard for enforcement. However, as Williamson (1968) noted, horizontal mergers typically result in transfers that may greatly exceed in magnitude any deadweight loss or efficiency gain, so that a decision to ignore transfers may be quite important. I argue that such transfers are likely overall to be quite regressive, and thus that a consumer surplus standard rather than a total welfare standard may be appropriate for antitrust. Two common arguments against this standard - that most mergers are in markets for intermediate goods, and that a consumer welfare standard implies a tolerance for monopsony - are examined and found wanting. I argue in addition that, even if a total welfare standard is used, both the finance literature on merger outcomes and the structure of the U.S. enforcement agencies suggest that the use of a consumer surplus standard by the agencies is more likely to achieve that goal.

JEL Classification: D02, D31, G34, K21, L40

Suggested Citation

Pittman, Russell, Consumer Surplus as the Appropriate Standard for Antitrust Enforcement (June 2007). Available at SSRN: https://ssrn.com/abstract=996643 or http://dx.doi.org/10.2139/ssrn.996643

Russell Pittman (Contact Author)

U.S. Department of Justice - Economic Analysis Group ( email )

450 5th St. NW
Antitrust Division
Washington, DC 20530
United States
202-307-6367 (Phone)
202-307-3372 (Fax)

Kyiv School of Economics ( email )

vul. Yakira, 13, 3d floor, suite 334
Kyiv, 04119
Ukraine

New Economic School (NES) ( email )

100A Novaya Street
Moscow, Skolkovo 143026
Russia

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