Antitrust Policy Should Focus on Consumer Harms and Benefits, Not Vague Economic and Social Goals, New Report Advises

October 4, 2018

WASHINGTON—Large corporations are under intense scrutiny in Washington, with the Federal Trade Commission conducting hearings on the state of competition and consumer protection in the 21st century, the Federal Communications Commission reviewing proposed mergers between telecommunications giants, and public opinion souring on the perceived role and influence of ‘Big Tech.’

Against this backdrop, an increasingly vocal group of scholars and activists has been calling on policymakers to abandon a 40-year-old consensus that antitrust policy should focus first and foremost on consumer harms and benefits by instead broadening the scope of antitrust enforcement in aggressive new ways to simultaneously rein in big firms and address an array of social challenges. But a new report released today by the Information Technology and Innovation Foundation (ITIF), the world’s top-ranked science and technology policy think tank, finds there is no case for rejecting the long-established “consumer welfare standard.” ITIF concludes that doing so would be ineffective in solving the problems that advocates seek to address, and it would undermine consumer welfare and economic growth.

“The consumer welfare standard is the bedrock of American antitrust law. There is no legitimate case for abandoning it in favor of a vague and hard-to-enforce alternative,” said ITIF Senior Fellow Joe Kennedy, author of the report. “Attacking large companies without considering the value they produce for consumers will only produce uncertainty, deter firms from innovating, and undermine American companies’ ability to compete in global markets.”

The consumer welfare standard generally states the main criterion regulators should use when evaluating a merger or alleged anticompetitive behavior is overall consumer welfare, economic efficiency, or both. But, following in the tradition of the early 20th century Supreme Court Justice Louis Brandeis, who distrusted large corporations and championed the cause of breaking them up, today’s neo-Brandeisians advocate for expanding the scope of antitrust policy as the lynchpin of a broader agenda to address concerns such as the decline in small business formation, the rise in income inequality, regional economic decline, wage stagnation, privacy concerns, and political reform.

ITIF’s report shows the consumer welfare standard is able to handle some of its critics’ legitimate concerns. In some of the areas where it cannot, other policy tools such as privacy policy and campaign finance reform are more appropriate courses of action. But in other areas, pursuing the critics’ goals—including protecting small businesses from legitimate competition and avoiding layoffs—would reduce consumer welfare and hamper economic growth.

“For the neo-Brandeisian critics of the consumer welfare standard, bigness has become a unifying theory of all that’s wrong with the U.S. economy and society,” said Kennedy. “They see fighting large firms as a way to achieve long-held progressive goals. But abandoning the consumer welfare standard to pursue a broader agenda would invite more uncertainty and greater partisanship at a time when the country clearly needs less of each. Returning to old ways would reduce social welfare and ultimately hurt the very people the critics aim to protect.”

Read the report.