How Chicago Economics Distorts “Consumer Welfare” in Antitrust

• Published date: 01 December 2019
• Date: 01 December 2019
• DOI: 10.1177/0003603X19875038

Article

How Chicago Economics

Distorts “Consumer Welfare”

in Antitrust

Mark Glick*

Abstract

Since the publication of Robert Bork’s The Antitrust Paradox, lawyers, judges, and many economists have

defended “consumer welfare” (CW) as a standard for decisions about antitrust goals and enforcement

priorities. This article argues that the CW is actually an empty concept and is an inappropriate goal for

antitrust. Judge Bork adopted CW from economics where welfare unambiguously measured utility or

well-being. Welfare economists concede that there is no credible measurable link between price and

output and human well-being. This means that the concept of CW does not legitimate limited antitrust

enforcement nor does it justify the exclusion of other antitrust goals that require more active

enforcement practices. This article contends that antitrust policy is not welfare based at all and, that if

it were, antitrust policy and enforcement would differ significantly from the Chicago School vision.

Without the fiction that economists can establish that in the short run lower price and higher output

measurably increase welfare more than other goals, recent defenses of the CW standard resolve down

to arguments based on unsupported assumptions.

Keywords

consumer welfare, goal of antitrust law, New Brandeis School, Chicago School of Economics

Serious thinking about antitrust goals has been in a deep freeze since the Reagan Revolution. For the

last forty years, the Chicago School’s limited antitrust approach based on the consumer welfare (CW)

standard has dominated the antitrust policy debate. Now, suddenly, winds of change are blowing.

1

The

“New Brandeis School” seeks to replace questionable Chicago School assumptions in order to reshape

and renovate antitrust enforcement in the United States. As prominent neo-Brandeisian Lina Khan

*Department of Economics, University of Utah, Salt Lake City, UT, USA

Corresponding Author:

Mark Glick, Department of Economics, University of Utah, 201 Presidents Circle, Room 201, Salt Lake City, UT 84112, USA.

Email: glick@economics.utah.edu

1. See Sandeep Vaheesan, The Profound Nonsense of Consumer Welfare Antitrust (forthcoming) (this journal issue) (discussing

the disconnect between consumer welfare and legislative intent of the antitrust laws, and a distorted view of the relationship

between markets and the law, as well as incorrect assumptions about business conduct. None of these issues are addressed by

this paper).

The Antitrust Bulletin

2019, Vol. 64(4) 495-513

ªThe Author(s) 2019

Article reuse guidelines:

sagepub.com/journals-permissions

DOI: 10.1177/0003603X19875038

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describes, “Sometimes called the New Brandeis School, this group signals a break with the Chicago

School, whose ideas set antitrust on a radic ally new course starting in the 1970s and 1980s a nd

continue to underpin competition policy in the USA today.”

2

In an earlier paper published in the

Antitrust Bulletin, I defended the New Brandeis project by showing that CW is not an operational

concept.

3

From its inception, welfare economists and the founders of welfare economic theory

acknowledged that economic performance could not be linked to measures of human well-being, or

welfare, in a rigorous way. As a result, when output increases, or prices fall, one cannot conclude

much, if anything, about the impact on human well-being. Only in a situation where there are no losers

can we reliably conclude that welfare has increased, and even in that case, it is not possible to prove

that a welfare increase is more than trivial. In any case, antitrust enforcement never involves unan-

imous agreement between the parties, which is what would be required to eliminate any losers. In that

earlier paper, I also described how supporters of limited antitrust enforcement use CW to imply that

their views are more “scientific” because they are supported by a deeper theory of welfare developed

by economists.

This article carries the argument a step further, by showing that the concept of CW cannot

reliably guide policy and that antitrust practice in fact does not employ a concept of welfare.

Antitrust law instead developed, and proceeds, based on nonwelfare considerations. However,

since Judge Robert Bork’s introduction of the CW goal into antitrust, the economics field has

made great strides in the understanding of human well-being. Applying this new evidence sug-

gests that the goals advanced by the New Brandeis School would have a greater welfare increas-

ing impact than the Chicago School approach. Once the veil of assumptions behind the concept of

CW is lifted, recent defenses of the CW standard boil down to an appeal for limited antitrust

activity without any principled basis. There is no theoretical or empirical research in economics

that compels the restriction of antitrust enforcement as advocated by defenders of CW. Accord-

ingly, antitrust policy should be based on empirical analysis and historical fact, not ideology or

fear of disrupting existing orthodoxy.

I. The Founders of the Theory of Economic Welfare and Leading

Theorists in the Economic Welfare Field Recognized the Limitations

of Economic Welfare and These Limitations Make Welfare Theory

Inapplicable to Antitrust Applications

In an earlier paper, I retraced how leading theorists in welfare economics concluded that economists

cannot render policy guidance on welfare grounds without employing heroic and unreliable

2. Lina Khan, The New Brandeis Movement: America’s Antimonopoly Debate,9J.EUR.COMP. L. 131, 132 (2018) (“The

Chicago School focus on ‘consumer welfare’...has warped American’s antimonopoly regime, by leading both enforcers and

courts to focus mainly on promoting ‘efficiency’ on the theory that this will result in low prices for consumers. The fixation

on efficiency, in turn, has largely blinded enforcers to many of the harms caused by undue market power, including on

workers, suppliers, innovators, and independent entrepreneurs – all harms that Congress intended for the antitrust laws to

prevent.”); Marshall Steinbaum & Maurice Stucke, The Effective Competition Standard: A New Standard for Antitrust,

Roosevelt Institute (2018) at 1 (“This market power imbalance is due, in large part, to lax antitrust law and enforcement. The

Federal Trade Commission and Department of Justice are intended to monitor and prevent monopolies with market power

from forming ‘in their incipiency’. But of late, they have failed. This is due to the consumer welfare standard, which identifies

and judges harm to competition only by its potential effects on consumers-and rarely with respect to anything other than

prices.”); See also Lina Khan & Sandeep Vaheesan, Market Power and Inequality: The Antitrust Counterrevolution and Its

Discontents,11H

ARVARD LAW POLICY REV. 235, 237 (2017); Daniel Crane, Antitrust’s Unconventional Politics,VA. L.R.

ONLINE (forthcoming) at 8; TIM WU,THE CURSE OF BIGNESS:ANTITRUST IN THE NEW GILDED AGE 88, 135 (2018).

3. Mark Glick, The Unsound Theory Behind the Consumer (and Total) Welfare Goal in Antitrust,63A

NTITRUST BULL. 455

(2018).

496 The Antitrust Bulletin 64(4)