Consumer Surplus as the Appropriate Standard for Antitrust Enforcement
Russell Pittman, EAG 07-9, June 2007
Forthcoming in Competition Policy International.
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Abstract:
In antitrust enforcement as in cost-benefit analysis, neoclassical economics may be
interpreted as arguing for the use of a “total welfare” standard whose implementation
treats transfers as welfare-neutral. Several recent papers call for antitrust agencies to
move in the direction of this version of a total welfare standard for enforcement.
However, as Williamson (1968) noted, horizontal mergers typically result in transfers
that may greatly exceed in magnitude any deadweight loss or efficiency gain, so that a
decision to ignore transfers may be quite important. I argue that such transfers are likely
overall to be quite regressive, and thus that a consumer surplus standard rather than a
total welfare standard may be appropriate for antitrust. Two common arguments against
this standard – that most mergers are in markets for intermediate goods, and that a
consumer welfare standard implies a tolerance for monopsony – are examined and found
wanting. I argue in addition that, even if a total welfare standard is used, both the finance
literature on merger outcomes and the structure of the U.S. enforcement agencies suggest
that the use of a consumer surplus standard by the agencies is more likely to achieve that
goal.