Does the “Consumer Welfare Standard” Still Protect Competition? Opinions from FTC Antitrust Hearings

The most interesting and contentious four hours of discussion at the FTC Antitrust Hearings last week were cancelled. The planned sessions were set up as a “battle royal” between antitrust hipsters, conservatives, and progressives over whether the current approach is up to the challenge of preventing competitive abuses in the age of big tech and global companies.

At the epicenter of that debate are questions about the current standard, known as the “consumer welfare standard,” used by American competition regulators and courts to determine whether corporate behavior or a merger between companies is actually anticompetitive. To get a sense of what we ‘might’ have heard during those sessions, we went through hundreds of the comments submitted to the FTC to find all the substantive opinions expressed about the consumer welfare standard. We’ve included key quotes and you can click on the names to read their full submissions.

You’re welcome.

David Balto

“The consumer welfare standard should remain the key lodestar to guide enforcement. While the application of consumer welfare standard can and should be advanced based on modern thinking, it should not — as some have suggested — be thrown out entirely.

Traditional evidence-based antitrust methodology can rise to the challenges presented by modern industries. Just as scientists can use mathematics to break down impossible questions to solvable equations, the enforcement tools we have developed from over a century of antitrust enforcement allows us to break down and prove theories of harm. These tools should be advanced, but they should not be thrown out.”

Computer and Communications Industry Association

“The debate over the appropriateness of the consumer welfare standard is a healthy exercise, but significant changes should be considered with great caution. Antitrust norms should not be expanded to include other public policy factors unrelated to economics-based competition concerns.”

Consumers Union

“The Commission asks whether the “consumer welfare standard” is the most appropriate standard for evaluating mergers and conduct under the antitrust laws, and whether it is being applied appropriately. Properly conceived and implemented, it is an appropriate standard; but “properly conceived and implemented” is an important qualification.

Consumers belong at the forefront of the beneficiaries of an open, competitive marketplace, and as an organizing focus for evaluating competitive harm under the antitrust laws. However, we also believe that, at times, some of the corollaries of economic theory that have been put forward in recent years to define consumer welfare have unduly constricted it. As the Supreme Court affirmed in National Society of Professional Engineers v. United States, “all elements of a bargain — quality, service, safety, and durability — and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers.”

Future of Music Coalition

“FMC respectfully asks the FTC, in evaluating whether and how to mold competition policy to the effects of new technology, to consider an evolution of its historical view of the “consumer welfare” standard. A narrow focus on this standard makes understanding and regulating markets and entities that provide “free” products to listeners tremendously difficult, and may have contributed to a failure to anticipate or effectively remedy harms to musicians and listeners resulting from vertical and horizontal mergers.”

Global Antitrust Institute, Antonin Scalia Law School, George Mason University

“The consumer welfare standard remains the only antitrust standard that protects competition and therefore benefits consumers. It is supported by a wealth of empirical evidence and decades of successful application. What the critics propose is a reversion to the empirically discredited approach to antitrust in which size, superior efficiency, or innovation could create liability. Abandoning the consumer welfare standard in favor of the arbitrary and unworkable standards proposed by its critics will not solve any actual competitive problem, but rather will harm competition and consumers.”

Institute for Local Self-Reliance

“In recent decades, competition policy and antitrust enforcement have tended to discount the harmful effects of consolidation on the grounds that bigger companies deliver greater efficiencies and therefore, enhance consumer welfare. As the examples above illustrate, this exclusive focus on efficiency has not served either consumers or competition. We believe antitrust enforcement and the analysis of mergers and suspected anticompetitive conduct needs to focus on market structure, maximizing competition, and ensuring low barriers to entry.”

Innovation Defense Foundation

“Focusing exclusively on monopoly or concentration necessarily overlooks other aspects of competition that also affect consumer welfare. Because consumer welfare is central and responsive to all forms of competition, it remains an important measure in determining whether markets are competitive or anti-competitive. As Abbot B. Lipsky, Jr. recently testified, “no alternative criterion comes close to being a plausible candidate to be the guiding principle for construction and application of antitrust law.”

The Commission should assess antitrust policy based on a broader notion of efficiency and competition, instead of a narrow emphasis solely on price competition. Focusing on consumer welfare will facilitate this broader view and help ascertain the effects of current competitive practices.”

International Center for Law & Economics

“Unless and until a demonstrably better alternative is offered (and none has been, either today or over the course of antitrust’s 100-year history), the consumer welfare standard — warts and all — is the appropriate touchstone for antitrust enforcement and adjudication. Whether specific firm conduct or enforcement decisions promote consumer welfare is, of course, always up for discussion. But that antitrust law, enforcement decisions, and policy should not intentionally incorporate or be informed by inherently idiosyncratic and inevitably politicized public policy preferences is beyond doubt.”

NetChoice

“Removing the consumer welfare standard would risk injecting politics into what should otherwise be impartial decisions. Doing so would seriously degrade the trust Americans have in the impartiality of the FTC and would expose yet another component of our government to political scrutiny.”

Open Markets Institute

“The FTC must use Section 5 to protect and restore competitive markets. The FTC can use Section 5 to remake and revive antitrust law. Indeed, the FTC could use Section 5 to overthrow the ahistorical consumer welfare approach to antitrust and restore the broader legislative purposes of the FTC Act and other federal antitrust laws. For instance, the FTC could write regulations prohibiting horizontal and vertical consolidation in concentrated markets and exclusionary practices, such as predatory pricing, by dominant firms.”

Public Citizen

“Mergers and anti-competitive activity should be judged on more than just a narrow and misnamed “consumer welfare standard” that treats human beings as nothing more than passive purchasers of goods and services, concerned only with price. Consumer interests are broader, inclusive, for example, of privacy and innovation effects. And citizen interests are broader still, including impacts on jobs and wages, and political power. The FTC must find a way to reinfuse these broader considerations into enforcement.”

TechFreedom

“…Across Democratic and Republican administrations, the FTC’s mission has remained essentially constant. As noted at the very beginning of the FTC at 100 report, the ability to clearly define an agency’s mission is critical to the ability of that agency to succeed…Yet this consistency of focus on consumer welfare has not stopped the FTC from changing its approach to specific issues over time, whether because of changes in the consensus among outside experts/academics about those issues or simply because of the inevitable (and healthy) changes in partisan control of the Commission.”

Christopher S. Yoo

“Finally, some are calling for the FTC to exercise the authority granted by Section 5 of the FTC Act to police unfair methods of competition in ways that go beyond consumer welfare. The past has taught us that attempting to use the antitrust laws to promote goals other than consumer welfare opens the door to a wide range of intrusive government intervention that often harms consumers. Indeed, the FTC’s Administrative Law Judge hearing the case against LabMD concurred, ruling that the FTC must reveal the data security standards it intends to use to show that LabMD’s data security was so inadequate as to constitute an unfair trade practice.”


EXTRA CREDIT

While neither of these were not submitted directly to the FTC, this article from Tim Wu and the response from Douglas Melamed and Nicolas Petit offer a great overview of the key arguments.

Tim Wu

“There is a fundamental and important difference between a law that seeks to maximize some value, and one that is designed to protect a process. The maximization of a value, particularly one as abstract as “welfare,” necessarily puts enforcers and the judiciary in a challenging position, given that welfare is abstract and ultimately unmeasurable. In contrast, the protection of competition standard puts the antitrust law in the position of protecting the competitive process, as opposed to trying to achieve welfare outcomes that judges and enforcers are ill-equipped to measure. In that sense, it makes the antitrust law akin to the “rules of the game,” and make enforcers and judges referees, calling out fouls and penalties, with the goal of ultimately improving the state of play, by protecting a competitive process that actually rewards firms with better products. Beside this practical benefit, as a policy matter,this relatively small change would do much to give antitrust room to achieve its historic goals, and generally make antitrust far more attentive to dynamic harms.”

Doug Melamed and Nicolas Petit (Response)

“Because the CW paradigm is by nature empirical, it has fostered ongoing debate and research about and evolution of antitrust standards, much of which has concerned exclusionary conduct. Since the triumph of the CW paradigm in the 1980s, the very economists and “lawyers pretending to be” economists whose prominence in antitrust law troubles Wu have developed a rich understanding of anticompetitive tactics for raising rivals’ costs by non-price exclusionary practices that seem more likely to undermine competition than the pricing practices on which so much pre-CW paradigm antitrust law was focused. Wu undervalues the “dynamic potential” of the antitrust laws to evolve within the CW paradigm in response to new market developments or poor enforcement performance.”