Reframing the (False?) Choice between Purchaser Welfare and Total Welfare

Posted by D. Daniel Sokol

Alan J. Meese, William & Mary Law School is Reframing the (False?) Choice between Purchaser Welfare and Total Welfare

ABSTRACT: This article critiques the role that the partial equilibrium trade-off paradigm plays in the debate over the definition of “consumer welfare” that courts should employ when developing and applying antitrust doctrine. The paper contends that common reliance on the paradigm distorts the debate between those who would equate “consumer welfare” with “total welfare” and those who equate consumer welfare with “purchaser welfare.” In particular, the model excludes, by fiat, the fact that new efficiencies free up resources that flow to other markets, increasing output and thus the welfare of purchasers in those markets. Moreover, the model also assumes that both the positive and negative impacts of a transaction are permanent and occur immediately and simultaneously. As a result, the model excludes the (very real) possibility that subsequent entry will undermine or mitigate any market power, leaving only efficiencies that benefit purchasers in the original market.

Removal of these unrealistic assumptions requires the antitrust community to reframe the debate about the appropriate welfare standard for antitrust and could require adjustment of the standards applied to practices that both raise prices and create efficiencies in the relevant market. For instance, recognition that efficiencies generated in one market cause resource flows to other markets and higher output in such markets undermines claims that producers “pocket” efficiencies whenever a practice results in in higher prices. Thus, instead of involving a conflict between “producers” and “purchasers” in a single market, transactions that both raise prices and create efficiencies require antitrust policy to resolve a conflict between purchasers in the original market, on the one hand, and those in other markets, on the other. In the same way, the realization that the trade-off model ignores the passage of time requires antitrust policy to resolve a conflict between current and future purchasers in the original market.