Monopsony and the Meaning of “Consumer Welfare”: A Closer Look at Weyerhaeuser

Monday, January 1st, 2007 at 12:00 am by J. Thomas Rosch
J. Thomas Rosch, Monopsony and the Meaning of “Consumer Welfare”: A Closer Look at Weyerhaeuser, 2007 Colum. Bus. L. Rev. 353

The goals and guiding principles of the U.S. antitrust laws have been debated since the enactment of the Sherman Act (Act) over a hundred years ago. Today, there is at least a consensus over basic terminology. Courts and federal law enforcement officials routinely invoke “consumer welfare” as the guiding principle behind their application of the antitrust laws. Yet there is continuing debate over what consumer welfare means. To some, consumer welfare focuses on the effects of the anticompetitive conduct on consumers in the relevant market. According to this view, antitrust liability ultimately turns on whether the seller will have market power over consumers purchasing the output of the relevant market. To others, including many from the Chicago School, consumer welfare is a much broader concept. They believe the antitrust laws should be applied in a way that maximizes society’s wealth as a whole or–to use their language–that protects “allocative efficiency.” Put differently, when they use the term consumer welfare, they refer not just to the welfare of consumers in the output market, but to the welfare of all consumers in society. Finally, there are those that argue that this is largely an academic debate with no real world impact because there is very little difference between the two standards. The debate over the meaning of consumer welfare has been revived over the last year. Last fall, the Antitrust Modernization Commission solicited testimony on the topic when it discussed the role of efficiencies in merger analysis. Further, the Supreme Court will have an opportunity to weigh in on the debate when it decides Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co. later this term. To date, the Court’s position has been opaque. It has been almost thirty years since the Supreme Court described the antitrust laws as a “consumer welfare prescription” in Reiter v. Sonotone Corp. The Court borrowed the phrase from Judge Robert Bork, a preeminent Chicago School scholar. Yet it is unclear whether the Court also adopted the philosophy behind Judge Bork’s use of the phrase. Judge Bork, like other Chicago School adherents, believed that consumer welfare could only be maximized when total (societal) surplus was maximized. In his view, antitrust policy and rules should guard against all practices and transactions creating allocative inefficiencies; thus, the antitrust laws could and would facilitate the maximization of consumer wealth in the aggregate without regard to its distribution. The plaintiffs in Reiter, however, were consumers in the output market. Thus, it is by no means clear that the Court’s description of the antitrust laws as a “consumer welfare prescription” went beyond the view of distinguished economists like Salop and Lande–the view that the primary concern of antitrust should be to prevent conduct and transactions that transfer wealth from consumers of the output in the relevant market to those who produce that output.

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Commissioner, Federal Trade Commission