The sole purpose of the paper is to provide a description of the consumer welfare (“CW”) standard and its evolution in the context of competition law.

I begin with the definition of CW and by pointing out how the now evident issues of the Chicago school approach have relatively little to do with a (correct) application of this parameter. The document moves then to recall the unresolved and significant issues that characterise this parameter: some of a theoretical nature, such as the use of wealth instead of welfare, others relating to the problems in assessing innovation, quality, market dynamism, the oligopolistic context and, in general, its ignoring goals other than purely economic ones.

The paper then examines the alternative standards proposed from time to time (and currently with greater force), such as those based on pluralism, the competitive process, ‘bigness’, the political content of antitrust, the protection of small companies, and fairness.

The conclusion highlights the significant problems arising from these alternative parameters, starting with their inconsistency with one another, and their complexity.

Sommario/Summary:

1. Introduction. - 2. Is consumer welfare the defining issue in the Chicago-school based antitrust overhaul? - 3. The consumer welfare standard has issues. - 4. Alternative standards. - 5. Issues with the alternative standards. - NOTE

1. Introduction.

Antitrust is a peculiarly vague and case-dependent branch of the law: while it is supposed to be all about the restriction of competition, not everyone agrees even on what competition or restriction really mean in the antitrust context. The attempt by courts to overcome the problem by forging legal concepts such as ‘competition on the merits’, or ‘competition based on performance’ or (in the negative) ‘means other than those characterizing normal competition’ at times appear to add vagueness to vagueness. This is why one can in a way sympathize with the effort to create a standard, a North Star, showing the way on the uncertain path of antitrust enforcement. Let us begin to say that, for a while, at least, courts, agencies, lawyers and economists alike, have believed to have found such lead in the so-called consumer welfare standard (from now on: CWS, and CW for ‘consumer welfare’). We will not delve, for lack of space, in the controversy of what exactly CW is (definitely, however, it is not total welfare, Bork’s slight of hand). Let us just say that at one point even the US Supreme court started referring to it, and it has not ceased doing so ever since [1]. A convincing definition runs as follows: CW is about keeping output as high as possible, so that prices will remain low [2]. Essentially, CW, if interpreted rightly (and literally), is about putting the emphasis on the consumer (whether the final or the intermediate one is yet another issue, to be left for another day). In the European Union, the CWS has only very recently been accepted explicitly by the courts (and, in particular, the Court of Justice): see, Servizio Elettrico Nazionale, where it is stated that the protection of the consumer is the goal of competition law, although the Court adds its reference to the competitive process – which in some ways may appear to be an alternative standard to the CWS. The court avoids, however, going all the way to the concept expressed in the same case by AG Rantos, i.e., that the competitive process is relevant only in so far as it ensures the CW goal [3]. Adding to CW, not only a reference to the competitive process, as said, but also, the mention ofcompetition on the merits. It would also be interesting to consider what a ‘standard’ is. Here, it has been said that standards are related to the goals of a given field of law. The standard of competition law should [...]

2. Is consumer welfare the defining issue in the Chicago-school based antitrust overhaul?

Most of the massive criticism levied against the so-called Chicago-school inspired enforcement of antitrust, has very little to do with the CWS, and even less with its specific implementation in the antitrust world. What alienates from that school of thought, in fact, is not so much its recourse to CW, as the many undemonstrated and ideologically motivated assumptions on which it has based its antitrust (under-)enforcement. We are referring here to the fact that [5]: A. Efficiencies surface everywhere, and are assumed; this is particularly true for mergers; B. It is believed that innovation and its reward need size and supra-competitive pricing. The ‘manifest’ of this is Scalia’s Trinko opinion: the assumption that bigness is the outcome of superior acumen and thwarting it disincentivizes innovation – which in many ways seems to target the meaning itself of a competition law system; C. As a consequence: antitrust is asked to stay away from excessive pricing and other exploitative abuses; D. Vertical restraints, including mergers, are almost always efficiency-driven; E. Conglomerate mergers cannot almost ever be harmful; F. Leverage never happens; G. Monopsony merits very little attention, including the correlated labor issues; H. Predation does not exist or, if it does, in the end it benefits consumers; I. Oligopolistic collusion does not exist or is best left alone; J. Acquisitions of start-up companies, no matter how promising and innovative, are ignored; K. Issues in interlocking and minority shareholdings are ignored; L. The fear of ‘false positives’ is all over, and begets under-enforcement; N. There is a strong bias against the recourse to structural remedies. This is what, really, almost killed antitrust. Not the CWS.

3. The consumer welfare standard has issues.

Having said this, the CWS has its own issues, and not insignificant ones: A. To begin with, the CWS focuses on ‘wealth’, and not welfare; in other words, wealth is only a substitute, often times, a poor one: this means that CW should consider “important issues that affect human well-being that can be influenced by antitrust policy. When there is sufficient social science evidence that these concerns indeed are key components of human welfare, and can be affected by antitrust policy, then they should be considered, along with the CWS concerns of price, innovation, and choice”[6]; while this already introduces the topic of ‘alternative’ standards, the point to take home here is that the whole theory is based on an idea (that antitrust should maximize welfare), except that properly-so-called welfare cannot be measured and we have to replace it with wealth; B. Typically, CW tries to assess the impact on Marshallian demand, a criterion that is subject to some criticism in modern welfare economics[7]; C. The CWS assumes marginal utility is constant even between people who have a very different level of wealth[8]; D. It ignores loss on the input side even when efficiencies exist[9]; E. It ignores the relevance of innovation and productivity[10] and, in general, the dynamics of competition, as it is strictly based on a static pricing model; the attempt to tackle this with the idea of innovation markets did not go very far because of the high enforcement and adjudication hurdles, and general opposition[11]. This, by the way, is one of the most serious loopholes in the CWS, one which cannot lightly be either cured or tolerated; F. Ignores ‘quality’, which was part of the original CW concept (where price was ‘quality-adjusted’); G. Does not consider the relationship between growth and democracy, based on inclusiveness[12]; H. Ignores consumer manipulation and foreclosure; in general, consumer welfare is difficult to apply to exploitative abuses: as shown rather eloquently by the fact that, on the wings of its ‘more economic approach’, the Commission decided to not tackle exploitative abuses in its Article 102 ‘enforcement priorities’ document[13]; I. Doesn’t tackle well oligopolies, which may be at the basis of much non-competitive market performance[14]; J. Does not solve the issue of who consumers are, e.g., whether they should represent only ultimate consumers, or [...]

4. Alternative standards.

umerous standards, alternative to CWS, have been proposed from time to time. In general, the basic difference is between those who continue to take a purely economic approach, but aim at increasing the credibility of the CWS, and those who (either by giving it up altogether, or by complementing it with different values) wish to expand it in the direction of ‘non-market’ values, such as democracy, the environment, the protection of suppliers or workers or small business. In line with what we considered above, i.e., that different standards are designed to achieve different goals, some of the alternatives represent properly-so-called standards, while others can be more precisely defined as alternative interpretations favored for the pursuit of different goals, i.e., goals other than consumer welfare. Others, finally, do more properly fall in the category of modified, rather than alternative, standards. A selection of the most interesting alternative standards proposed so far includes: A. The ‘Reasonable Competitive Conduct (RCC) Standard, proposed by Steven Salop[26]. This represents a twist in the CWS, which aims more directly at ‘powerful, dominating’ firms, as well as at the protection of smaller firms and consumers. More specifically, it proposes to do this is by (1) avoiding balancing, particularly when this means sacrificing (in the name of efficiency) the interest of the ‘protected’ categories, such as workers and small firms; (2) asserting more interventionist standards (mainly by way of per se rules, or through presumptions, including by raising and lowering, depending on where appropriate, the relevant burden of proof) towards exclusionary practices (e.g., by using Raising Rivals’ Costs analysis, scrutinizing more accurately exclusivity, etc.), and mergers (e.g., lower HHI thresholds), and by creating an antitrust exception to allow consumers or smaller firms to band together in order to acquire bargaining power vis-à-vis more powerful firms; B. A number of standards, or goals, which aim at controlling the structure of the market, the size of firms, the political clout of firms, or more straightforwardly to protect or achieve some form of structural ‘pluralism’ with both, in a way, market and political implications, such as: 1. A focus on process and structure[27]: though critics of such choice highlight that the content of such standard is not always very clear, nor is its [...]

5. Issues with the alternative standards.

Such ‘alternative standards’ have of course problems of their own, when it comes to their implementation: Different outcomes: One useful exercise, to begin with, though probably not as frequent as one would predict, is to ask oneself whether the recourse to different standards really would make any difference in the outcome of the case. One could imagine, e.g., a merger situation or the one of an environment-friendly but otherwise restrictive agreement: in such cases, it may make a difference if a merger is judged based on a CWS in the traditional sense of the word, a CWS where total welfare applies (where wealth transfers are uninfluential, that is), or of a standard which takes into consideration environmental protection as a value. In fact, based on the OECD study, in such cases the standard could indeed make a difference[66]. The same is true of a parallel trade situation (such as in the Glaxo Spain case), depending on whether the ’consumer’ to be protected in the CWS framework is the ultimate consumer or the wholesaler (i.e., the one who is really making money out of the parallel trade)[67]. A possible conflict exists, furthermore, in situations such as those occurring in joint purchasing agreements, no-poaching clauses, subcontracting and franchise agreements, depending on whether the antitrust focus is put on the consumer or on the supplier/the workers. The same reasoning applies, in general, to the issue of monopsony, which has been vastly overlooked in the traditional, CWS-oriented school of antitrust [68]. As considered by Einer Elhauge, in fact: […] there are at least four […] Supreme Court cases for which the adoption of a consumer welfare standard cannot be dismissed as dicta because it was necessary to their holdings. In Brooke and Weyerhaeuser, it was necessary for the holdings that, respectively, below-cost pricing and overbidding without subsequent recoupment should be allowed as procompetitive because they benefit consumer welfare while they exist without harming them in the long run, rather than condemned as anticompetitive because they inefficiently impede rival competition while they exist. In Leegin, it was necessary for the holding that the prior per se rule against vertical minimum price-fixing agreements should be overruled because such agreements could benefit “consumer welfare” with higher service levels, rather than condemned per se because they restrain free market [...]

NOTE