The Consumer-welfare Standard Should Cease to Be the North Star of Antitrust

• Publication year: 2021
• Author: By William Markham

THE CONSUMER-WELFARE STANDARD SHOULD CEASE TO BE THE NORTH STAR OF ANTITRUST

By William Markham¹

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I. INTRODUCTION

In this article, I argue that federal antitrust law has been undermined by the consumer-welfare standard and related doctrines, and in direct consequence it has failed to accomplish its intended purposes and failed even according to the very narrow, myopic standards of consumer-welfare jurisprudence. To restore antitrust law, so that it will sufficiently protect and promote competitive markets and curtail monopolistic and anticompetitive practices, it is not necessary to adopt new doctrines or standards, but only to revive and faithfully observe the classical common-law prohibitions against restraint of trade and unauthorized monopolies. Senator Klobuchar's bill now pending in the Senate appears to accomplish this very result and thus seems to be the kind of reform that would redress the systematic under-enforcement of federal antitrust law during the consumer-welfare era.

Since the late 1970s, antitrust law in the United States has been transformed out of recognition and rendered largely toothless by consumer-welfare jurisprudence, which was first developed in the 1960s by "neo-classical price theorists" at the University of Chicago, then embraced by Robert Bork and other conservative jurists, who believed that antitrust law imposed excessive, harmful burdens on successful companies. Their consumer-welfare standard and its related teachings were adopted by the Burger Supreme Court in the late 1970s, after which the leading treatise on antitrust law, Areeda and Hovenkamp's Antitrust Law, explained and further developed the consumer-welfare approach to antitrust law. That treatise, long regarded as the bible of modern American antitrust law, has been regularly consulted by federal judges seeking guidance in their antitrust cases, leading to innumerable published decisions that incorporated its consumer-welfare precepts. The treatise in turn has reported, explained and analyzed those court decisions, further confirming consumer-welfare's primacy in the antitrust canon, and leading to yet more federal decisions premised on this view of antitrust law. It has been by this self-reinforcing feedback loop that consumer-welfare jurisprudence has swept the field in the modern era, transforming American antitrust law.

The federal courts have had the authority to develop this approach, since the principal antitrust law, the Sherman Act, confers on them the obligation to develop a federal common law of competition and commerce that is supposed to govern the interstate and foreign commerce of the United States. For all that, consumer-welfare jurisprudence in my view has badly overshot its mark and should be largely abandoned before it occasions even further harm. The courts can and should use their common-law authority to reform our antitrust law accordingly.

The change is needed because consumer-welfare jurisprudence has gone much too far, not only weeding out opportunistic and ill-conceived cases that never should have been brought, but also severely limiting the reach of antitrust law, so that it now prohibits only the most egregious instances of anticompetitive conduct, but little else. Some jurists might believe that this approach has been beneficial. I respectfully disagree and argue in this article that the best possible reform of our antitrust laws would be a simple, ringing restoration of the classical doctrines on restraint of trade and unauthorized monopoly. Those doctrines remain on the books and can be easily re-affirmed without doing violence to principles of stare decisis.

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Thankfully, my call for antitrust reform is not merely that of an obscure litigator whose lonely voice remains unheard in the wilderness. Rather, the era of consumer-welfare jurisprudence finally seems to be nearing its end, or at least its unquestioned primacy in the antitrust canon: mainstream Democrats, moderate Republicans, progressive leftists, populist right-wingers, Economist-magazine liberals like me, and, far more important, many federal judges both conservative and liberal all seem to favor a revival of classical antitrust. The left-wing progressives and right-wing populists perhaps wish to push matters much further, while skeptical conservatives generally accept that some sort of reform of our antitrust law is now needed. Antitrust reform thus appears to be headed our way.

Indeed, Justice Kavanaugh has already written two forceful, eloquent antitrust decisions (one a concurrence), which remind me of President Theodore Roosevelt's preferred approach to antitrust enforcement: announce strong antitrust principles, enforce them vigorously against the worst offenders, and aim in that manner to prod all others to restrain their anticompetitive inclinations. That is likely the best approach and the one most likely to elicit bipartisan support as well as a simpler, more sensible administration of our antitrust laws. I add that Congressional reform of the kind now being debated should afford further, highly welcome relief: at a minimum, it should clarify that the aim of antitrust law is to prevent and redress restraint of trade and monopolization, not promote maximal output in each market.

As I explain below, American antitrust law is supposed to enforce across all markets the common-law prohibitions of restraint of trade and unauthorized monopoly. These classical doctrines are codified in the Sherman Act and constitute a political and commercial judgment, discerned from centuries of experience, concerning what kinds of business practices are most likely to promote our broader prosperity, economic opportunity, honest dealings, low prices for consumers, and a healthy democracy. Regrettably, those doctrines sometimes seem to have become distant third cousins in modern antitrust jurisprudence, which for these past forty years has been largely guided by consumer-welfare jurisprudence.

According to the consumer-welfare theory, antitrust law exists solely to ensure that sellers "maximize" their output in all markets. When they do so, antitrust law offers no reproach or relief. That is the proper explanation of the misnamed consumer-welfare standard. It is premised on revisionist history, promises analytical clarity and simplicity, delivers the opposite, and serves in practice to absolve most restraints of trade and most kinds of monopolizing conduct, with catastrophic consequences for our commerce, national economy, polity, and society.

Even so, the classical doctrines of antitrust law largely remain on the books and should be revived and enforced again with vigor, as they were most notably during the long, prosperous post-WWII era. Consumer-welfare jurisprudence has been used to abrogate a succession of per se rules, but not the classical precepts. Rather, consumer-welfare jurisprudence has imposed additional, largely impossible burdens of proof that antitrust plaintiffs must meet in addition to the classical requirements. It is past time to remove the consumer-welfare obstacles from antitrust prosecutions.

The north star of antitrust should cease to be the standard consumer-welfare tests — restricted marketwide output and unprovable supracompetitive prices. Rather, the

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lynchpin of antitrust should again be the exclusionary practices test, which asks whether the defendant uses a challenged practice to co-opt or impede competitors or to improve its offerings. If the former, the defendant has committed predicate conduct that exposes it to antitrust liability; but if the latter, the defendant has competed on the merits and is absolved of any possible antitrust liability. What better message could our law of competition express to market participants?

By this approach, and by narrowing or abrogating various consumer-welfare doctrines, the classical doctrines on restraint of trade and monopolization would be fully restored and guided by easily understood, easily applied rules against naked restraints and exclusionary conduct. Judges and juries could readily understand and rule on these matters, and antitrust claims would cease to be obscured by often elusive microeconomic arguments about market output, efficient practices, and supracompetitive pricing put forth by competing experts. None of that was ever supposed to be central to antitrust.

Broadly speaking, restraint of trade as used in the common law and original antitrust cases prohibited the following commercial practices: (1) contracts and concerted business arrangements that, for the sake of hindering or suppressing competition, restrain or prevent counterparties or others from plying their trades or competing in a market; (2) business arrangements by which most sellers or buyers in a market combine their operations in order to control the market; and (3) collusion between buyers or sellers to take advantage of their common sellers or customers (e.g., conspiracies to fix prices, allocate markets or rig ostensibly competitive bidding). Classical antitrust enforced these doctrines, holding offenders in violation of Section 1 of the Sherman Act. Classical antitrust also used these doctrines to explain the meaning of unlawful monopolization in violation of Section 2 of the Sherman Act. Namely, the offense of monopolization condemned a company's deliberate efforts to gain control of a market by acquiring or sabotaging its rivals, but never reached a company that became a monopoly by its commercial excellence or because its market naturally admitted only one seller. Those doctrines should be revived and vigorously enforced. Lastly, Section 7 of the Clayton Act should prevent many more mergers and acquisitions than it has done these past forty years. I explain below an easy, simply administered approach that is faithful to the original Clayton Act and its amendment in 1950 by the Celler-Kefauver Act.

Crucially, all of these doctrines remain on the books and are sometimes...