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Welfare Standards and Merger Analysis: Why not the Best?

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  • Kenneth Heyer

    (Economic Analysis Group, Antitrust Division, Department of Justice)

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    Abstract

    Over the past several decades, there has emerged a rough consensus among professional antitrust practitioners, and within the law and economics community generally, that the "competition" referred to in our antitrust statutes is not to be interpreted simply as pre-merger rivalry among entities. Rather, it is best viewed as a process, the outcome of which is welfare, with welfare-not "rivalry"--being the object of interest. Consistent with this interpretation, scholars, competition authorities, and the courts have come to treat antitrust law as condemning only those mergers whose effect may be substantially to reduce welfare. That having been said, there remains a question of which welfare standard to use, and exactly whose welfare to consider. Several candidates suggest themselves. I argue in this paper for using the so-called "Total Welfare" standard, rather than the more commonly employed "Consumer Welfare" standard. In doing so, I respond to three broad objections that have been raised. One is that use of a total welfare standard conflicts with antitrust law, or at least with legal precedent. A second is that employing a total welfare standard would be more costly for antitrust agencies than employing one or another flavor of a consumer welfare standard. A third is that the total welfare standard ignores important distributional considerations-considerations that are better treated under some form of consumer welfare standard. Each of these objections is evaluated, and ultimately found unpersuasive.

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    File URL: http://www.justice.gov/atr/public/eag/221880.pdf
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    Bibliographic Info

    Paper provided by Department of Justice, Antitrust Division in its series EAG Discussions Papers with number 200608.

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    Length: 26 pages
    Date of creation: Mar 2006
    Date of revision:
    Handle: RePEc:doj:eagpap:200608

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    Postal: Department of Justice Antitrust Division 450 Fifth Street NW Washington, DC 20530
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    Web page: http://www.justice.gov/atr/
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    Cited by:
    1. Zimmerman, Paul R. & Carlson, Julie A., 2010. "Competition and cost pass-through in differentiated oligopolies," MPRA Paper 25931, University Library of Munich, Germany.
    2. Timothy J. Brennan, 2009. "Energy Efficiency: Efficiency or Monopsony?," UMBC Economics Department Working Papers 09-110, UMBC Department of Economics, revised 01 May 2009.
    3. Ghosh, Arghya & Morita, Hodaka, 2012. "Competitor collaboration and product distinctiveness," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 137-152.
    4. Budzinski, Oliver, 2012. "International antitrust institutions," Ilmenau Economics Discussion Papers 72, Ilmenau University of Technology, Institute of Economics.
    5. Le Pape, Nicolas & Zhao, Kai, 2013. "Horizontal mergers and uncertainty," Economics Discussion Papers 2013-62, Kiel Institute for the World Economy.
    6. Dennis Carlton & Ken Heyer, 2007. "The Year in Review: Economics at the Antitrust Division, 2006–2007," Review of Industrial Organization, Springer, vol. 31(2), pages 121-137, September.
    7. Russell Pittman, 2007. "Consumer Surplus as the Appropriate Standard for Antitrust Enforcement," EAG Discussions Papers 200709, Department of Justice, Antitrust Division.
    8. Brennan, Timothy J., 2009. "Energy Efficiency: Efficiency or Monopsony?," Discussion Papers dp-09-20, Resources For the Future.
    9. Fiammetta Gordon & David Squires, 2008. "The Deterrent Effect of UK Competition Enforcement," De Economist, Springer, vol. 156(4), pages 411-432, December.
    10. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Competition Policy Center, Working Paper Series qt9pt7p9bm, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    11. 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.
    12. 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.
    13. Oliver Budzinski & Jürgen-Peter Kretschmer, 2009. "Horizontal Mergers, Involuntary Unemployment, and Welfare," MAGKS Papers on Economics 200907, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    14. Brennan, Timothy J., 2011. "Energy efficiency and renewables policies: Promoting efficiency or facilitating monopsony?," Energy Policy, Elsevier, vol. 39(7), pages 3954-3965, July.

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