Lina Glick: "Excellent new paper by economist Mark Glick arguing that the consumer welfare standard has "unduly circumscribed how advances in our understanding of the economy can be translated into competition policy

Mark Glick: The Unsound Theory Behind the Consumer (and Total) Welfare Goal in Antitrust: This is the first installment of a two-part commentary on the New Brandeis School (the “New Brandeisians”) in Antitrust. In this first part, I examine why the New Brandeisians are correct to reject the consumer welfare standard. Instead of arguing, as the New Brandeisians do, that the consumer welfare standard leads to unacceptable outcomes, I argue that the consumer or total welfare standard was theoretically flawed and unrigorous from the start. My basic argument is that antitrust law addresses the impact of business strategies in markets where there are winners and losers. For example, in the classical exclusionary monopolist case, the monopolist’s conduct is enjoined to increase competition in the affected market or markets. As a result of the intervention, consumers benefit, but the monopolist is worse off. One hundred years of analysis by the welfare economists themselves shows that in such situations “welfare” or “consumer welfare” cannot be used as a reliable guide to assess the results of antitrust policy. Pareto Optimality does not apply in these situations because there are losers. Absent an ability to divine “cardinal utility” from observations of market behavior, other approaches such as consumer surplus, and compensating and equivalent variation cannot be coherently extended from the individual level to markets. The Kaldor-Hicks compensation principle which is in standard use in law and economics was created to address problems of interpersonal comparisons of utility and the existence of winners and losers. However, the Kaldor-Hicks compensation principle is also inconsistent. In light of this literature, the New Brandeisians are correct to reject Judge Bork’s original argument for adoption of the consumer welfare standard, but for deeper reasons than they have not expressed thus far.