Consumer Surplus as the Appropriate Standard for Antitrust Enforcement
AbstractIn 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.
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Bibliographic InfoPaper provided by Department of Justice, Antitrust Division in its series EAG Discussions Papers with number 200709.
Length: 19 pages
Date of creation: Jun 2007
Date of revision:
Other versions of this item:
- Russ Pittman, 2007. "Consumer Surplus as the Appropriate Standard for Antitrust Enforcement," CPI Journal, Competition Policy International, vol. 3.
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
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