The consumer welfare standard that has guided antitrust enforcement for four decades is under attack. That standard, often associated with the ideas of legal scholar and failed Supreme Court nominee Robert Bork, holds that mergers and acquisitions should be allowed so long as they improve consumer welfare. Usually, this is interpreted through factors like lower prices, higher quality, and greater choice. However, a new group of “neo-Brandeisian” scholars like Federal Trade Commission Chair Lina Khan reject that theory in favor of a much blunter approach that condemns corporate “bigness.” If the antitrust consensus over consumer welfare unravels, we may need a new framework for scrutinizing corporate M&A activity. One alternative would be an approach focused on America’s total stock of capital.
Bork revolutionized antitrust in the 1970s by injecting economic analysis into his field. His alternative to prevailing legal theories was to argue that instead of following hazy moral judgments about big being inherently bad and small inherently good, economic efficiency and consumer interests should take precedence, since the intent of the relevant laws was, in Bork’s interpretation, to improve consumer welfare. To accomplish this, antitrust needed clear economically-grounded rules for determining when mergers are beneficial and when they lead to monopoly.
This is not to say that Bork’s ideas were perfect or even fundamentally correct, from an economic point of view. Fans of using economics in antitrust enforcement might recognize that consumer welfare and overall economic efficiency often diverge, at least in the short run. Big picture gains in innovation and national income growth often necessitate short-term tradeoffs for consumers. In the long run, consumers will still benefit, but in the short run they might have to tolerate a few inconveniences. Yet, whatever limitations Bork’s ideas had, there is little denying that the consumer welfare standard represented a massive improvement over the theories that preceded it.
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