Comment on the U.S. FTC Hearings on Competition and Consumer Protection in the 21st Century: The Consumer Welfare Standard in Antitrust Law

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This comment is submitted in response to The Federal Trade Commission’s invitation to participate in its Hearings on Competition and Consumer Protection in the 21st Century. We appreciate the opportunity to comment and commend the FTC for inviting discussion on these important topics. In this comment, we discuss the Consumer Welfare Standard in Antitrust Law.

The consumer welfare standard is the guiding principle of modern antitrust analysis. It demands that substantive and procedural antitrust rules be fashioned to benefit consumers, adopting economic learning and accounting for error costs. This does not mean that the antitrust agencies or private plaintiffs must prove actual harms that outweigh actual benefits in every case. Rather, they use economic theory and judicial experience to create presumptions and procedural rules to truncate analysis where appropriate to minimize error costs and administrative costs. These presumptions favor plaintiffs when the type of conduct at issue is likely to harm consumers; when the type of conduct at issue is likely to have a beneficial or neutral effect on consumers, the presumptions favor defendants. In cases of conduct that is known to “always or almost always” harm consumers, there is no need to prove harm, and efficiency justifications are precluded by the rule of per se illegality. This approach facilitates the prosecution of truly harmful conduct, while reducing costs associated with false positives.

The consumer welfare standard has been widely lauded for bringing “coherence and credibility” to antitrust law, providing a framework for consistent, economically sound decision making, and giving consumers the benefit of lower prices, increased output, higher product quality, and more innovation. By focusing on a single objective measure, the consumer welfare standard disciplines modern antitrust law. Antitrust enforcers and courts under a consumer welfare standard are forced to support their actions with sound economic evidence. This helps to deter arbitrary or politically motivated enforcement actions that would chill aggressive, but beneficial, competitive conduct. Most important, the standard helps consumers, which is to say, all Americans.

Antitrust was not always based upon such a clear vision. Prior to the economic revolution in antitrust law, which took hold in the late 1970s, courts applied the Sherman and Clayton Acts incoherently and anticompetitively, condemning low prices and protecting less efficient, but politically-favored firms from competition. Abandoning the consumer welfare standard inevitably would harm consumers, lower output, diminish quality, and decrease innovation. The question for proponents of alternative standards is what offsetting benefits, if any, American consumers would receive in exchange for a shift to a standard that unequivocally makes them poorer. We believe the answer is either zero or close to it, and certainly not sufficient to justify the harm done to consumers by abandoning the consumer welfare standard.

Part I of this Comment addresses the Public Interest standard being proposed in some quarters to replace the consumer welfare standard. We show that approach would harm consumers by importing multiple incommensurate and often conflicting standards into antitrust law. Part II addresses the Consumer Choice standard favored by Lande and Averitt. We show that approach would harm consumers by focusing upon nonprice dimensions of competition without weighing the unavoidable tradeoffs that would entail. Part III addresses specific proposals for a standard specific to online platforms. We show these proposals would harm innovation and burden successful firms, while discouraging new firms from entering the market.