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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.

Suggested Citation

  • Farrell, Joseph & Katz, Michael L, 2006. "The Economics of Welfare Standards in Antitrust," Competition Policy Center, Working Paper Series qt1tw2d426, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  • Handle: RePEc:cdl:compol:qt1tw2d426
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