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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)

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.

Suggested Citation

  • Kenneth Heyer, 2006. "Welfare Standards and Merger Analysis: Why not the Best?," EAG Discussions Papers 200608, Department of Justice, Antitrust Division.
  • Handle: RePEc:doj:eagpap:200608
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    File URL: https://www.justice.gov/atr/public/eag/221880.pdf
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    Cited by:

    1. Fiammetta Gordon & David Squires, 2008. "The Deterrent Effect of UK Competition Enforcement," De Economist, Springer, vol. 156(4), pages 411-432, December.
    2. Brennan, Timothy J., 2011. "Energy efficiency and renewables policies: Promoting efficiency or facilitating monopsony?," Energy Policy, Elsevier, vol. 39(7), pages 3954-3965, July.
    3. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, Elsevier.
    4. Dennis Carlton & Ken Heyer, 2007. "The Year in Review: Economics at the Antitrust Division, 2006–2007," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 31(2), pages 121-137, September.
    5. Brennan, Timothy J., 2009. "Energy Efficiency: Efficiency or Monopsony?," Discussion Papers dp-09-20, Resources For the Future.
    6. Le Pape, Nicolas & Zhao, Kai, 2014. "Horizontal mergers and uncertainty," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 8, pages 1-31.
    7. 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.
    8. Budzinski, Oliver, 2012. "International antitrust institutions," Ilmenau Economics Discussion Papers 72, Ilmenau University of Technology, Institute of Economics.
    9. Oliver Budzinski & Jürgen-Peter Kretschmer, 2009. "Horizontal Mergers, Involuntary Unemployment, and Welfare," Working Papers 90/09, University of Southern Denmark, Department of Sociology, Environmental and Business Economics.
    10. Zimmerman, Paul R. & Carlson, Julie A., 2010. "Competition and cost pass-through in differentiated oligopolies," MPRA Paper 25931, University Library of Munich, Germany.
    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. Ghosh, Arghya & Morita, Hodaka, 2012. "Competitor collaboration and product distinctiveness," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 137-152.
    13. Russ Pittman, 2007. "Consumer Surplus as the Appropriate Standard for Antitrust Enforcement," CPI Journal, Competition Policy International, vol. 3.
    14. Tsuyoshi Toshimitsu, 2017. "Analysis of Merger Control in A Network Products Market," Discussion Paper Series 169, School of Economics, Kwansei Gakuin University, revised Nov 2017.

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