New Study Reminds Regulators to Keep Focus on Consumer Welfare in Antitrust

Yesterday the good folks at the Information Technology and Innovation Foundation (ITIF) held an important and timely event on the future of antitrust policy. The spotlight was on a new study by ITIF Senior Fellow Joe Kennedy titled “Why the Consumer Welfare Standard Should Remain the Bedrock of Antitrust Policy.” 

Safeguarding consumer welfare has been the basis for evaluating how the federal government should enforce antitrust law for decades, but in recent years, some scholars have argued for a shift that would likely expand dramatically the industries, companies, and merger deals that would be subject to enforcement actions. Kennedy summarizes his argument like this:

The application of antitrust policy, through which the government seeks to shape the general rules of competition, has always been contentious. But for roughly 40 years there has been a consensus that its ultimate goal should be the welfare of consumers, broadly defined to mean maximizing overall economic growth. Yet a small, but growing group of activists and scholars now argues we should abandon the consumer welfare standard and add in a host of new factors for antitrust policy to address, while also attacking “bigness” per se.

These activists and scholars believe that focusing on consumers overlooks other values, including vibrant small businesses, innovation, privacy, worker interests, and healthy democratic processes. For them, large companies by their very nature pose a unique danger to the economy and help form a kind of society they reject. The consumer welfare standard stands in the way of using antitrust policy to limit the size of large firms.

This argument for a changed standard is either something exciting and new—hence the popular nickname “hipster antitrust”—or a tired re-tread of economic ideas that went out of style around the time of the polyester leisure suit. Most members of Thursday’s panel lean toward the latter characterization, though some were open to using other regulatory remedies for the ostensible economic goals sought by the hipster legalists. 

Fans of expanding the scope of antitrust look at things a little like the guy who has only a hammer as a tool. In his case, everything looks like a nail. They, however, are more like a person who only has nails to work with—in that case, every tool ends up looking like a hammer. And they have a lot of targets they’re eager to hammer away at. Their underlying concern is more often than not really a generalized unease with inequality of wealth and income, and perceptions of systemic unfairness in modern commercial society. Because this is such a broad problem to try to solve, “economic justice” activists are happy to turn anything they can get their hands on toward the problem.

Higher marginal income tax rates, forgiveness of student loans, forcing companies to add more women to corporate boards, and breaking up big tech companies via antitrust enforcement are all, for the most part, different tentacles of the same anti-capitalist octopus. A system of property rights and free exchange can’t be trusted to yield a just economic outcome, the argument goes, so we need ever more invasive and aggressive governmental re-balancing of the economy to set things right.

That may be consistent with certain philosophic theories of justice, but it has nothing to do with every steel or coal company in the country making an illegal agreement to fix a monopoly price—in other words, the kind of problem antitrust law was actually created to solve. If today’s hipsters want a broad scheme of wealth distribution and economic levelling, they should argue for that rather than trying to reinvent antitrust law under the guise of strengthening it.