Consumer Welfare Theory as an Ethical Consideration:: An Essay on Hipsters, Invisible Feet, and the “Science” of Economics

• Date: 01 December 2018
• Published date: 01 December 2018
• Author: Darren Bush
• DOI: 10.1177/0003603X18815001

Article

Consumer Welfare Theory

as an Ethical Consideration:

An Essay on Hipsters, Invisible

Feet, and the “Science”

of Economics

Darren Bush*

Abstract

This article outlines the principle of efficiency as taken from physics and misapplied into the realm of

economics. The result of the misapplication has been a narrow view of antitrust policy, culminating in

an extremely conservative application of the consumer welfare standard. The result of such policy has

been increasing concentration in many industries, abdication of any examination of monopoly power in

the context of Section 2 of the Sherman Act, and dogmatic defense of “consumer welfare” as the only

scientific approach to antitrust law. Part II reviews of the original goals of antitrust, as viewed without

the lens of present-day economic efficiency. These are policy goals as described in legislative history

and judicial development of common law. As such, they are ethical considerations distinct from

consumer welfare. In part III, the article discusses the central tenets of economics in antitrust policy.

These central notions are policy considerations that are misapplications of physics. Part IV discusses

the physics definition of efficiency, with some insights as to the issues arising from adopting such a

standard in terms of antitrust markets. Part V addresses the failures of antitrust using the lens of

physics, explaining that consumer welfare is an ethical argument, not a scientific one. Part VI addresses

other potential ethical standards for antitrust enforcement, as well as empirical evidence that support

such norms. Part VII offers concluding thoughts where the article argues that there are superior ethical

norms that would boost antitrust enforcement and that are consistent with the goals of antitrust.

Keywords

consumer welfare, efficiency, antitrust policy, externalities

I. Introduction

In this article, I make the less than fantastical claim that the “science of economics” is not really a

science in the way one envisions physics or mathematics. I instead argue that, despite its best effort at

*The University of Houston Law Center Faculty, Houston, TX, USA

Corresponding Author:

Darren Bush, The University of Houston Law Center Faculty, 4604 Calhoun Road, Houston, TX 77204, USA.

Email: dbush@central.uh.edu

The Antitrust Bulletin

2018, Vol. 63(4) 509-528

ªThe Author(s) 2018

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DOI: 10.1177/0003603X18815001

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pretending its examination of human consumer behavior is a science, economics is really a logical and

deductive moral philosophy that takes as its core principle the misapplication of physics. Because the

unit of analysis is not the entire system, the use of physics and the consumer welfare standard from

which it is derived falls apart if one examines the outcomes of its applications and its assumptions in

the realm of antitrust.

Economists increasingly assert that consumer behavior theory is empirically true. The desire to

make economics more scientific has led to the notion that economic observations about the modern

economy are scientifically true and proven. As an example, the notion of efficiencies as a merger

defense stems from the notion that a firm is profit maximizing and therefore will seek to cut costs or

otherwise engage in strategies to lower its cost of production. This is taken as a fundamental assump-

tion upon which economics is based. Oddly, proof of this concept is ethereal at best. Worse, production

theory in mainstream economics is a mirror image of its application of consumer theory, which it

misapplied from constrained optimization challenges in physics.

The misapplication of scientific theory in economics has ramifications for antitrust policy. For

example, the fixation on firms as economically rational has led to the rejection of some theories of

harm that have been empirically observed. For example, economic theory over the course of the past

several decades has rejected claims of predatory pricing because such a strategy would be an irrational

strategy for a profit-maximizing firm to employ.

However, such policy decisions in the face of dramatic shifts in economic theory are not uniform.

For example, vertical resale price maintenance’s flagship case of over 100 years, Dr. Miles, was

overturned based upon “economic evidence,”

1

signaling perhaps that the Supreme Court believed that

a paradigm shift had taken place in economic theory, at least with respect to resale price maintenance.

The “science” of economics was introduced into the antitrust realm in the early 1970s. The Olin

Foundation and others educated judges in the field of microeconomics to suggest that the overall value

of antitrust policy should be to maximize consumer welfare. Unfortunately, the knowledge conveyed

upon the judges was incomplete, and they failed to understand that what economists were conveying to

them was really an ethical consideration driven by what was mostly the smoke and mirrors of

economic analysis made mathematical.

In this fashion, the encroachment of economics into antitrust policy has created a dystopian world in

which a substantial amount of effort and money is invested in increasingly limited antitrust review.

The lynchpin of this dystopian view has been an extremely limited view of the consumer welfare

theory of economics and the concept of efficiency.

The application of this policy has been beneficial to everyone involved. Merging parties for the

most part still get to merge. The Department of Justice (DOJ) and the Federal Trade Commission

(FTC) can claim “wins” from compelling relative ly minor consent decrees. Defense lawyers and

economists can continue to bill major hours in assuring that the mergers go through.

The result has been increasing concentration, increasing challenges to the efficacy of current

antitrust enforcement efforts in the United States, and increasing defensiveness on the part of the

agencies. In essence, the DOJ, the FTC, and the Supreme Court have caused the death of antitrust by

“1,000 economic theory cuts.”

2

What neither agencies nor the Court could constitutionally do, repeal a

statute, they have accomplished through their dystopian view of how the Sherman Act operates, a view

completely removed from the purpose of the Act and the consequences such a view has created for free

enterprise and economic organization in our country.

1. See Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007).

2. Verizon Commc’n Inc. v. Law Offices of Curtis v. Trinko, LLP, 540 U.S. 398, 414 (2004) (quoting Brief for State of New

York as Amici Curiae).

510 The Antitrust Bulletin 63(4)