Consumer Welfare In Competition And Intellectual Property Law

Herbert Hovenkamp, Dec 20, 2013

Whether antitrust policy should pursue a goal of “general welfare” or “consumer welfare” has been debated for decades. The academic debate is much more varied than the case law, however, which has consistently adopted consumer welfare as a goal.

While some practices such as mergers might produce greater gains in productive efficiency than losses in consumer welfare, identifying such situations would be extraordinarily difficult. First, these efficiencies would have to be “transaction specific,” meaning that they could not be attained by other means. Second, these would necessarily be gains that accrue at lower output levels than previous to the practice; otherwise there would be no consumer harm to balance. But most efficiency gains accrue at higher rather than lower output levels. Third, collusion facilitating practices spread welfare losses across an entire industry, while production gains typically accrue only to the participants in a merger or similar practice. Fourth, the reigning tradeoff models generally assume a market that was competitive prior to the practice and monopolized after. Most practices that facilitate the exercise of market power occur in markets that were noncompetitive to begin with. In these situations consumer losses are relatively larger and producer gains smaller…

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