The goal of this short piece, which can be found here, is to address arguments that abandoning the ‘consumer welfare’ standard would make antitrust law too unworkable and indeterminate.

The paper argues that there is an alternative standard ‘protection of competition’ that is practicable and at least as predictable as the consumer welfare standard. This standard has the additional advantage of being much truer to the legislative intent underlying US antitrust laws than the consumer welfare standard.

The piece is structured as follows

The first section provides an overview of the two main criticisms of current antitrust practice.

Critics of current antitrust practice are committed to antitrust revival, and broadly opposed to the extremes of the Chicago. However, they then divide as regards their approach to the “consumer welfare” standard. The first group – comprising mainly economist and lawyers – believes that the standard has been abused and misused, but nonetheless retains its utility as the anchor of antitrust law and policy. This group believes that newer economic tools, used more carefully, can yield a body of law that gains from the sophistication and rigor of economics, but escapes the many errors of omission that are the Chicago school’s legacy. The second group – the ‘populist’ or ‘New-Brandeisian’ school – makes a more foundational critique by seeking a return to what they see as antitrust’s original goals. New Brandeisians are less likely to be economists, and more likely to be historians, legal academics, or policy advocates.  They are particularly critical of the premise that the maximization of consumer welfare is the “exclusive” goal of antitrust and believes that antitrust cannot fully recover without first jettisoning the premise that “Congress designed the Sherman Act as a ‘consumer welfare prescription’’.

At some level, the two schools focus on different problems. The first school is suggesting that the consumer welfare standard and associated economic tools are useful, as a means, for detecting truly anticompetitive behaviour, but that their use must be improved. The second school suggests that the problem is not economic but legal and normative – i.e. antitrust is not doing what it should.

The second section puts some ‘hard questions’ to each school.

The hardest question for the first school is whether the consumer welfare standard is too restrictive and static faithfully to execute the law’s intent. Despite the often brilliant ability of economists to make consumer welfare arguments, the emphasis on measurable harms to consumers tends to bias the law toward a focus on static harms and, especially, on prices. Such “price fixation” inevitably tends to marginalize antitrust enforcement against dynamic harms like the blocking of potential competition, slowing of innovation, loss of quality competition, and overall industry stagnation. Another critique of consumer welfare standard is its indeterminacy. Originally sold as providing greater certainty, the highly abstract nature of “welfare” or “efficiency” means it has not delivered the scientific certitude it promised. Moreover, as an economic abstraction, it means that only experts (economists, and the occasional lawyer pretending to be one) can make credible consumer welfare arguments in all but the simplest of cases.

The hardest question for the second school is this: what, in practice, would it really mean to move beyond a consumer welfare standard? The reason why the consumer welfare was adopted so swiftly and completely during the Chicago revolution was that antitrust was perceived to be widely incoherent at that point in time. The consumer welfare standard promised to eradicate messiness and the complex balancing of multiple factors by adopting a simpler, disciplined and single-pointed theory that promised straightforward answers. New Brandeisian often seem to ignore the implications of their proposals on the administrability of antitrust law.

A third section proposes the adoption of a standard based on the ‘protection of competition’.

First, Wu argues that such a standard finds support in the case law – by the Supreme Court in recent pay-for-delay cases, and even by Posner in some cases. It is also a standard that enjoys from much greater support from congressional intent and earlier precedent than consumer welfare. As Barak Orbach makes clear, protection of competition was, from the 1890s until the 1970s, the accepted and restated goal of the antitrust laws.

A potential criticism is that a ‘protection of competition’ standard is too vague. Against this, Wu argues that ‘protection of competition’ standard is likely to be easier to apply than the consumer welfare standard. There is a fundamental and important difference between laws that seeks to maximize some value which is ultimately unmeasurable, and one designed to protect a process. The protection of competition standard puts antitrust law in the position of protecting the competitive process, as opposed to trying to achieve welfare outcomes that judges and enforcers are ill-equipped to measure. In that sense, this standard turns antitrust law into a form of “rules of the game”, and enforcers and judges into referees protecting a competitive process that actually rewards firms with better products. Furthermore, this relatively small change would do much to give antitrust room to achieve its historic goals, and generally make antitrust far more attentive to dynamic harms. At its best, protection of competition can and should draw on more than a century of economics that have sought to better understand how markets actually work in practice, as opposed to in theory.

A second potential concern about the protection of competition goal is that it can be used to promote protectionism and to protect inefficient firms. This is captured in the often-misused slogan that “antitrust is meant to protection competition, not competitors’. This charge of protectionism displays a lack of faith in the competitive process. If antitrust law serves to eliminate distortions in competition, then, in theory, the firms with better quality goods and cheaper prices will win out. Removing bottlenecks and subversions of competition does not afford protection for the weak; instead, it may expose incumbents whose weakness is disguised by anticompetitive behaviours.

A last section identifies the considerations that ought to be used by an enforcer whose aim is the protection of the competitive process.

Leaving aside price-fixing cases (where consumers truly are the victims), antitrust complaints usually involve one party (the aggressor) seeking to inflict some economic damage on another party or set of parties. The basic question is whether the complained-of conduct is competition on the merits, or, rather, an effort to disable or subvert the competitive process.More concretely, we should return to asking, in most antitrust cases, the following question: Given a suspect conduct (or merger) is this merely part of the competitive process, or is it meant to “suppress or even destroy competition?

In short, enforcers should ask who the plaintiff and defendants are, which conduct is being complained of, is there some evidence of distortion or suppression of the competitive process, and does the complained-of conduct or merger tend to implicate important non-economic values, particularly political values?

This kind of analysis attempts to capture far more of the dynamics of the competitive process then consumer welfare analyses. The author suggests that this approach goes back to the original versions of the rule of reason, which were more clearly concerned with the competitive process.

Comment:

This paper provides a very solid, short overview of current US debates on the role of competition. I have pointed out elsewhere that it is common for authors challenging current US antitrust practices to fall back into tests that are strongly reminiscent of EU law – and that this is rarely ever acknowledged. This paper seems to fit this pattern.

While I am sympathetic to the European approach (unavoidably), I fail to see the strength of the argument here other than at a rhetorical level. The paper takes criticisms of the current status of antitrust enforcement at face value. The problem I have with this (which must be qualified by a disclaimer that I am not a qualified US lawyer) is that in practice the Chicago school did not prevail: a variant of the Harvard School did, which focuses on administrable rules that are proxies for consumer harm. At the same time, harm to the competitive process is often justified, at least in Europe, as being a proxy to consumer harm.

Even acknowledging the author’s implication that his proposed standard would not require direct evidence of consumer harm, I think that the changes to antitrust analysis inherent to this change in standards may not be as large as the author thinks.  However, this may very well stem from personal ignorance of how US law actually operates; but it is a view that seems to be shared by the authors in the paper reviewed in the post below.

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