Scaling Innovation: Why We Should Preserve the Consumer Welfare Standard in Antitrust Policy

Should antitrust law combat big firms? For the last 40 years, antitrust policy has been guided by what is known as the consumer welfare standard, which generally allows companies to pursue mergers or any other market strategies they may choose, absent harm to consumers or anticompetitive conduct. But some activists have advocated for going back to a time when government actively pushed back against the formation of large firms, an approach championed in the early 20th century by Supreme Court Justice Louis Brandeis. Today’s neo-Brandeisians worry about what they see as undue concentrations of economic and political power among large corporations, and they hope to prop up small businesses. They largely discount the economic efficiencies and innovation that large companies can generate, and they urge policymakers to abandon the consumer welfare standard in favor of expanding the scope of antitrust to include a host of other, often conflicting and ill-defined goals.

On October 4, 2018, ITIF hosted an expert panel discussion about its new report, the reasons why America should stick with the consumer welfare standard, and not return to the days when antitrust policy viewed big as inherently bad.

Joe Kennedy, Senior Fellow at ITIF, started the event by giving a brief overview of the new report. The report argues that that the consumer welfare standard (CWS) is the correct standard to judge antitrust cases. The CWS examines antitrust cases to see if an activity creates anti-competitive harm to consumers. Joe stated that it is widely adopted by antitrust judges because it sets a clear standard for them to use. However, Joe explained that many antitrust advocates want the CWS to be radically reformed or eliminated. These opponents of the CWS, following in the tradition of the early 20th century Supreme Court Justice Louis Brandeis, want a more aggressive antitrust standard, as they feel that the CWS allows companies grow too large. They fear that large merged companies can bully regulators and politicians into writing beneficial laws for the merged companies. The neo-Brandeisians also think the CWS doesn’t address non-price concerns in antitrust, and they want the federal government to address pricing antitrust concerns before they are manifested.

Joe argued that many of the neo-Brandeisians statistics on large company mergers don’t point at any actual harm to consumers; instead, the CWS’s opponents simply believe that bigger is usually worse in antitrust cases. Joe argued that the neo-Brandeisians overlook current government guidelines that address their concerns over non-price point problems. Neo-Brandeisians believe that the current antitrust regime limits regulation because large companies can simply buy up innovators. Joe countered this argument by pointing to federal guidelines that protect innovation, and he mentioned that federal regulators have recently blocked mergers from happening because of the damage to innovation. Finally, neo-Brandeisians argue that the CWS negatively affects workers, but Joe pointed out that federal regulators have blocked non-compete agreements for franchises to share workers among themselves.

In Joe’s report, he highlights that neo-Brandeisians believe Internet platforms pose unique tests to traditional antitrust policy. But the report reveals this is not the case. Neo-Brandeisians believe these platforms don’t compete among themselves, but the report shows that these platforms do compete in the ad market. Joe also stated that neo-Brandeisians see these platforms as anticompetitive because they have non-price problems like demanding consumers’ data, but Joe states that the CWS adequately deals with these concerns because much of the data is not private; further, antitrust policy isn’t the appropriate platform to address consumer data privacy policy. Ultimately, the report shows the consumer welfare standard is the best way to deal with antitrust cases.

Will Rinehart, Director of Technology and Innovation Policy at the American Action Forum, spoke next. He agreed with Joe’s main point that the consumer welfare standard is effective in dealing with current antitrust concerns. He pointed to the American Tobacco antitrust case as an example of the harm that neo-Brandeisian demands create. He stated that the breakup negatively affected consumers, partly because American Tobacco is a different company than most other antitrust cases. For example, American Tobacco was the result of three mergers, and the merger resulted in a unitary organization. This type of company is like Apple, while AT&T is more like a Standard Oil-style company. Will argued that the neo-Brandeisians want to apply all antitrust standards equally to different types of companies, while their standards will result in an American Tobacco style breakup if applied to the wrong companies. Some mergers should be stopped, but some mergers are good for both prices and consumers. Will argued that context matters in antitrust policy, and he believes that antitrust policy should ensure that the most harmful mergers don’t occur rather than focusing on blocking mergers simply because they result in a bigger company.

Charlotte Slaiman, Policy Counsel at Public Knowledge, spoke next. She stated that she doesn’t believe that the consumer welfare should be eliminated, but she also thinks that antitrust policy needs more federal regulation. She noted that the CWS has bipartisan support, and that this standard is more flexible than people commonly think. She argued that the CWS adequately address innovation, and it’s also dynamic in learning from new economic theory. She argued that current antitrust policy doesn’t address the recent decrease in entrepreneurship, but that this drop is due to current antitrust policy flaws. Finally, she does believe that corporate power increase should be addressed in antitrust policy. She wants antitrust policy to analyze the innovation concerns in antitrust policy and argued how more federal regulation in this field could address labor concerns and other such issues.

Carl Shapiro, Professor of Economics and Transamerica Professor of Business Strategy for the Haas School of Business at UC Berkeley, spoke next. He argued that the consumer welfare standard has an inaccurate label; it addresses workers’ concerns in addition to consumers. He cited the no-poach antitrust cases as an example of this point. He argued that neo-Brandeisians want antitrust policy to address more issues that it can, and that they should focus on other issues like campaign finance rather than use antitrust policy to achieve their aims. He stated that antitrust policy only deals with competition concerns and nothing else. Carl said that we should not radically change the CWS and that the neo-Brandeisian view on predatory pricing is flawed. He used Amazon as an example of their concerns, and he argued that current laws are already in place to deal with Amazon in case they become predatory. Finally, Carl stated that the CWS can regulate tech companies adequately. He thinks that the consumer welfare standard could use a name change to adequately state its effects and to better address concerns over possible tech cartels, but he believes that it is more than adequate to deal with current antitrust issues.

In conclusion, the panelists believe to varying degrees that the CWS is a positive standard to use for antitrust cases, but some of them also want to see more aggressive antitrust enforcement.

Follow @ITIFdc and continue the discussion on Twitter with the hashtag #ITIFantitrust.