CONSUMERS, ECONOMICS, AND ANTITRUST
| DOI | https://doi.org/10.1016/S0193-5895(04)21001-6 |
| Pages | 1-62 |
| Date | 01 July 2004 |
| Published date | 01 July 2004 |
| Author | John B Kirkwood |
CONSUMERS, ECONOMICS,
AND ANTITRUST
John B. Kirkwood
ABSTRACT
This is the first paper in a volume devoted exclusively to antitrust law and
economics. It summarizes the other papers and addresses two issues. First,
after showing that the federal courts generally view consumer welfare as
the ultimate goal of antitrust law, it asks what they mean by that term. It
concludes that recent decisions appear more likely to equate consumer
welfare with the well-being of consumers in the relevant market than with
economic efficiency.Second, it asks whether a buyer must possess monopsony
power to induce a price discrimination that is not cost justified. It concludes
that a buyer can often obtain an unjustified concession simply by wielding
bargaining power, but the resulting concession may frequently – though not
always – improve consumer welfare.
INTRODUCTION
Antitrust is finding its bearings. After decades of debate about its aims and
methods, antitrust law has largely adopted a single goal and a single methodology.
Today, most courts and commentators agree that the ultimate purpose of the
antitrust statutes is not to protect rivals but to benefit consumers.1It is also widely
accepted that the most useful tool for determining whether consumers have been
helped or harmed is economic analysis.2
Antitrust Law and Economics
Research in Law and Economics, Volume21, 1–62
Copyright © 2004 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0193-5895/doi:10.1016/S0193-5895(04)21001-6
1
2 JOHN B. KIRKWOOD
Within this consensus, however, disagreements remain. While there is little
doubt that the overarching goal of antitrust is consumer welfare, there is a
significant split over the definition of the term.3One view holds that consumer
welfare should mean economic efficiency. Under this view, the ultimate goal
of antitrust law is not simply, or even primarily, to protect consumers, but to
enhance the efficiency of the economy – that is, to increase the total economic
value that society derives from its limited resources. Since total value includes
value realized by producers as well as value obtained by consumers, under this
definition it is possible for “consumer welfare” to increase even though consumers
are harmed. The goal of efficiency analysis is to maximize the total “wealth” of
society, regardless of how it is distributed.
The principal alternative view holds that consumer welfare should refer exclu-
sively to the welfare of consumers – those who purchase the products or services
sold in the relevant market.4Under this view, the ultimate purpose of antitrust is
to protect consumers from exploitation. More precisely, antitrust should prevent
firms from using practices that increase their market power – their power to charge
prices above the competitive level – unless such conduct would, on balance,
benefit consumers in the relevant market. More simply, the goal of antitrust is to
ensure, whenever possible, that consumers pay competitiveprices for the products
and services they purchase.5This view of consumer welfare is also limited: it
takes no account of resource savings or other efficiencies that benefit the overall
economy but do not improve the well-being of consumers in the relevant market.
The second element of the antitrust consensus – the role of economics – also
generates disagreements. While few would question the importance of economics
in contemporary antitrust analysis, there are frequent debates about the economic
impact of specific practices. As Carlton and Perloff observe (2000, p. 605):
Even if one accepts the proposition that the goal of the antitrust laws is to promote efficiency,
economists often have difficulty determining which practices result in inefficient behavior.
The application of economics to antitrust law is, in short, a work in progress.
This volume provides a forum for the economic research needed to continue that
progress. It contains ten papers devoted exclusivelyto antitrust law and economics.
In Part I of this paper, I describe the nine other papers in this volume,summarizing
their approaches, their conclusions, and their significance for the development of
antitrust. In Part II, I address the debate over the meaning of consumer welfare,
an issue that potentially affects all areas of antitrust but has particular impact
on merger analysis. In Part III, I examine an issue that is raised but not resolved
by one of the papers; namely, whether a buyer needs to have monopsony power
in order to induce a price discrimination that is not cost justified – the core of
a Robinson-Patman violation. After answering that question, I assess whether
Consumers, Economics, and Antitrust 3
non-cost-justified discrimination induced by a large buyer is likely to hurt or
improve consumer welfare.
Part I – The Economic Research Papers
Written by some of the most distinguished scholars in antitrust today, the nine
economic research papers in this volume reflect the consensus described above.
They uniformly assume that the goal of antitrust is consumer welfare and that
economic analysis is a vital tool in achieving that goal. In addition, they help to
resolve debates that surround each element.
Several papers shed light on the meaning of consumer welfare. One paper
advances the debate by exploring a new measure of efficiency that assigns a
value to preventing consumer exploitation. Another focuses almost entirely
on consumer prices, rather than technical efficiency, in assessing the welfare
implications of 10 monopolization orders.
All nine papers evaluate the economic impact of specific practices. In doing so,
the papers look to the past as well as the future. Five of the articles evaluate older
antitrust cases to determine whether the decisions reached, the relief ordered, or
both, enhanced consumer welfare. The verdicts are striking. After extensive re-
views of the evidence, the authors conclude that hardly any case helped consumers
or economic efficiency,and some hurt both. Out of the 14 antitrust cases examined,
only one seems to have had a positive impact. In that case, Brevoort and Marvel
conclude that a dominant firm built and maintained its position through non-price
predation, and the order entered against the firm most likely promoted new entry.
These papers provide strong evidence for the proposition that many older
antitrust cases did not produce a discernible improvement in consumer welfare and
some may have actually harmed consumers. Significantly, the 13 cases reviewed
in this volume were all decided before 1965. In that period, consumer welfare was
not the generally accepted goal of antitrust law and economic analysis had neither
the importance nor the sophistication it has today. It was not until 1977 that the
Sylvania Court elevated the importance of economic analysis by insisting that per
se condemnation of a category of practices must rest on “demonstrable economic
effect.”6Two years later, the Court declared – for the first time – that the Sherman
Act was a “consumer welfare prescription.”7Academic commentary also shifted
in the late 1970s. From 1976 to 1978, Posner, Bork and Areeda each published
seminal treatises arguing that antitrust law should be dominated by a single goal
(consumer welfare) and a single methodology (economic analysis).8Given these
developments, it is not surprising that Kwoka and White (1989) contend that an
“antitrust revolution” began in the mid-1970s.
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