The Consumer Welfare Standard on Shaky Ground?
By: Lee K. Van Voorhis and Eugene Lim
For the past forty years, the consumer welfare standard (CWS) was the consensus economic model that antitrust enforcement agencies used to determine whether a company’s behavior necessitates antitrust action. The CWS became mainstream after former DC Circuit Justice Robert Bork published his exceedingly influential The Antitrust Paradox in 1978. The book argued that antitrust laws were created to maximize consumers’ benefits, which meant focusing on surplus gains for consumers while disregarding efficiency gains for producers. The US Supreme Court quickly solidified Bork’s views in Reiter v. Sonotone Corp. The CWS has since provided more predictability in antitrust enforcement, narrowing its focus purely on consumer prices.
However, critics are now voicing concerns that it is time to broaden the factors analyzing what benefits consumers. Critics have advocated that antitrust enforcement should be determined by a “total welfare standard" (TWS) instead. Note that it is not clear whether the TWS is best for any particular political point of view. On the one hand, the standard considers whether mergers could lead to higher unemployment, or harm the environment. On the other hand, the standard would allow some mergers that result in higher prices to consumers, but have benefits that outweigh those higher prices.
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