ICYMI: New ITIF Report Argues “The Consumer Welfare Standard Should Remain The Bedrock Of Antitrust Policy”
As FTC hearings on competitiveness and consumer welfare continue this week, wanted to flag the Information Technology and Innovation Foundation (ITIF) new paper by senior fellow Joe Kennedy, titled, “Why The Consumer Welfare Standard Should Remain The Bedrock Of Antitrust Policy.” Kennedy’s core arguments are below.
Contrary to critics, the consumer welfare standard goes well beyond pricing harms to consumers and is well-equipped to handle new business models.
Antitrust experts explain that the consumer welfare standard incorporates nonprice harms to consumers like lower quality, reduced variety, and slower innovation. “These experts argue that the consumer welfare standard, properly defined, protects all counterparties from an excess of market power. It incorporates nonprice harms to consumers, such as lower quality, reduced variety, or slower innovation. It gives regulators the power to look at the effect of monopsony power on other sellers, including on workers, and allows antitrust agencies to consider the effect of an action on innovation. They also argue that antitrust policy should remain focused on market activity and be backed by a clear economic analysis of likely effects.”
The consumer welfare standard covers innovation harms. “Regarding the claim that the consumer welfare standard does not adequately take into account nonprice harms such as reduced product quality and slower innovation, it in fact does incorporate nonprice harms, including threats to innovation. Specifically, it allows regulators to focus on the long-term trajectory of value and price, and take innovation effects directly into consideration. As UC Berkeley professor Carl Shapiro points out, the consumer welfare standard defines welfare broadly and encompasses nonprice aspects such as improved product variety and more rapid innovation.”
The consumer welfare standard applies to “free” business models. “But in fact, conventional antitrust guided by the consumer welfare standard is well equipped. This is because these companies make most of their money by charging other companies to place ads in front of their users (an activity in which they face lots of competition). And antitrust handles this aspect well because it does—or at least should— define the relevant market as the ad market, not the search or social network market. Moreover, to the extent any of these Internet companies use their market power in anticompetitive ways, such as by manipulating organic web searches to disadvantage a rival, the consumer welfare standard is more than adequate to deal with it.”
Tech critics’ proposals would put competition policymakers on an ill-defined mission that threatens to impose significant economic costs on consumers.
Tech critics’ attacks on bigness “would launch government on an ill-defined mission to shape markets to its liking.” “A number of experts argue for stronger enforcement, especially against mergers. But even they agree that consumer welfare, broadly defined, should remain the focus of debate. In contrast, the neo-Brandeisian attack against bigness in all its forms would launch government on an ill-defined mission to shape markets to its liking. The result would be a greater shift in antitrust enforcement whenever a new administration assumes power. This would invite more uncertainty and greater partisanship at a time when the nation clearly needs less of each.”
Breaking up large firms could impose significant economic costs without benefits to consumers or competitors. “Even if policymakers could decide on the right priorities, breaking up large companies would be extremely hard to accomplish. Will Rinehart of the American Action Forum points out that breaking up the Internet platforms would require the government to break up both integrated working teams and the underlying technology, something it is ill-suited to do. It would also need to create and enforce a regulatory system that separates the firm from other markets. He points out that the history of government-imposed breakups has been ineffective, imposing significant economic costs without achieving much benefit for consumers or competitors.”