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The Economics of Welfare Standards in Antitrust

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  • Farrell, Joseph
  • Katz, Michael L

Abstract

There has been considerable debate concerning whether consumer surplus or total surplus should be the welfare standard for antitrust. This debate misses two critical issues. First, antitrust is not straightforwardly welfarist—it does not maximize but protects, and it does not forbid all actions that seem likely to lower some welfare measure. Rather, antitrust enforcement has both process and consequence components: “anticompetitive†actions that harm consumers are illegal but other actions that harm consumers are not. Second, the enforcement process involves multiple steps and multiple decision makers. Mergers, for instance, are proposed by the merging parties, reviewed and perhaps challenged by antitrust agencies, and reviewed by courts. Hence, a full discussion of what standard is or should be applied must specify by whom and how it fits in the overall process. We conclude that, while some popular arguments for a consumer surplus standard are weak, other arguments have some merit.

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Bibliographic Info

Paper provided by Competition Policy Center, Institute for Business and Economic Research, UC Berkeley in its series Competition Policy Center, Working Paper Series with number qt1tw2d426.

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Date of creation: 20 Jul 2006
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Handle: RePEc:cdl:compol:qt1tw2d426

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Keywords: antitrust; merger policy; consumer surplus; welfare analysis; antitrust standards;

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Cited by:
  1. Armstrong, Mark & Vickers, John, 2008. "A model of delegated project choice," MPRA Paper 8963, University Library of Munich, Germany.
  2. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, Elsevier.
  3. Oliver Budzinski, 2009. "Modern Industrial Economics and Competition Policy: Open Problems and Possible Limits," Working Papers 93/09, University of Southern Denmark, Department of Environmental and Business Economics.
  4. Dennis W. Carlton, 2007. "Does Antitrust Need to be Modernized?," EAG Discussions Papers 200703, Department of Justice, Antitrust Division.
  5. Bilotkach, Volodymyr & Hüschelrath, Kai, 2012. "Airline alliances and antitrust policy: The role of efficiencies," Journal of Air Transport Management, Elsevier, vol. 21(C), pages 76-84.
  6. Russ Pittman, 2007. "Consumer Surplus as the Appropriate Standard for Antitrust Enforcement," CPI Journal, Competition Policy International, vol. 3.
  7. Kamerbeek, S.P., 2009. "Merger Performance and Efficiencies in Horizontal Merger Policy in the US and the EU," MPRA Paper 18064, University Library of Munich, Germany.
  8. Hoernig, Steffen & Nilssen, Tore & Pita Barros, Pedro Luis, 2008. "Keeping Both Eyes Wide Open: The Life of a Competition Authority Among Sectoral Regulators," CEPR Discussion Papers 6861, C.E.P.R. Discussion Papers.
  9. Fumagalli, Eileen & Nilssen, Tore, 2008. "Waiting to Merge," Memorandum 13/2008, Oslo University, Department of Economics.
  10. Jarig Sinderen & Ron Kemp, 2008. "The Economic Effect Of Competition Law Enforcement: The Case Of The Netherlands," De Economist, Springer, vol. 156(4), pages 365-385, December.
  11. Marc Fusaro & Richard Ericson, 2010. "The Welfare Economics of “Bounce Protection” Programs," Journal of Consumer Policy, Springer, vol. 33(1), pages 55-73, March.
  12. John Vickers & Mark Armstrong, 2007. "A Model of Delegated Project Choice With Application to Merger Policy," Economics Series Working Papers 347, University of Oxford, Department of Economics.
  13. Fiammetta Gordon & David Squires, 2008. "The Deterrent Effect of UK Competition Enforcement," De Economist, Springer, vol. 156(4), pages 411-432, December.

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