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Consumer Surplus as the Appropriate Standard for Antitrust Enforcement

 |  November 5, 2007

Russ Pittman, Nov 05, 2007

In antitrust enforcement, in the context of 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 Oliver Williamson noted in his 1968 paper, 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. In this paper, 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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