Tuesday, July 19, 2022
This is a comparative and historical examination of the slogans and goals most advocated for antitrust law today – namely, that antitrust should be concerned with “bigness,” that it should intervene when actions undermine the “competitive process,” or that it should be concerned about promoting some conception of economic welfare.
“Bigness” as an antitrust concern 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 invariably translate into protection of small business, or of firms dedicated to older distribution methods of 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.
The history of antitrust welfare tests is rooted in neoclassical economics. Today, they are dominated by a “welfare tradeoff” model developed in the 1960s and a consumer welfare model, drawn mainly from antitrust’s statutory language and legislative history. Robert Bork did these tests severe damage by adopting a welfare tradeoff model and naming it “consumer welfare.” 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 lack of competitiveness.
Finally, while many speak of “consumer welfare” as an antitrust goal, “welfare” is rarely what they measure. Rather, they measure – or better, 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.