Antitrust Law Daily Antitrust chief defends consumer welfare standard for antitrust enforcement
Tuesday, June 12, 2018

Antitrust chief defends consumer welfare standard for antitrust enforcement

By Edward L. Puzzo, J.D.

Broadening the consumer welfare standard for antitrust enforcement in order to also consider the effects on democracy and free expression is neither desirable nor necessary, according to Assistant Attorney General Makan Delrahim of the U.S. Department of Justice Antitrust Division, speaking at an Open Markets Institute event held this week in Washington, D.C.

The focus of the conference is on how changes in online and media industries are impacting free speech and democratic dialogue. Delrahim argued that enforcement actions advocated by some, purportedly aimed at supporting our democracy, carried too great a risk of inadvertently undermining our constitutional values. Exercising government power based on viewpoint was the surest path to undermining the First Amendment, Delrahim argued. It is also unnecessary, he stated, because enforcement of free markets for the benefit of consumers can be achieved with greater success, and greater fidelity to the rule of law, within the contours of the consumer welfare standard than without.

Risks in abandoning consumer welfare standard. Incorporating democratic values such as First Amendment rights into antitrust enforcement decisions may be counterproductive, Delrahim stated. Quoting Justice Brandeis, Delrahim stated that insidious encroachments upon liberty may result even when the government's purposes are beneficent. Enforcement decisions targeting democratic ends would invite a self-defeating exercise of prosecutorial subjectivity colored by the prosecutor's party or political orientation, Delrahim warned. He gave as an example a recent statement by a state antitrust enforcer that they would only join the DOJ case evaluating the AT&T/Time Warner merger case if Fox or Rupert Murdoch were excluded in any divestitures. Delrahim declined to make such an assurance, stating that divestitures should be based on what best benefits competition or consumers, as defined by the consumer welfare standard, rather than the viewpoint of the buyer. Using the consumer welfare analysis only, the DOJ staff showed that the merger would unlawfully raise prices for cable TV subscribers and harm online innovation, harms that could not be remedied by behavioral remedies.

Abandoning consumer welfare and opening the door to broader arguments about what is good or bad for democracy or free speech would, ironically, make antitrust agencies more open to the exercise of corporate influence and capture, Delrahim stated. The consumer welfare standard has helped to inoculate antitrust enforcement from the kind of rent-seeking and lobbying behavior all too common in government agencies. The standard also provides due-process standards for antitrust enforcement which might be difficult to achieve absent the consistent and definable standard that the consumer welfare analysis provides.

Current standard up to task. Antitrust enforcement using a consumer welfare standard focused on allocative efficiency, prices, quality, and innovation support a free market structure, which in turn provides an environment conductive to the preservation of our democratic political and social institutions, Delrahim asserted. In economic terms, he continued, a consumer welfare standard that focuses liability determinations on harms to competition and consumers creates positive externalities for American democracy.

In addition to concerns that abandoning the consumer welfare standard in pursuit of broader societal and democratic goals would risk core democratic values, it is also unnecessary because the current standard s more than capable of meeting the challenges presented by emerging digital technologies, Delrahim argued. The consumer welfare standard is broader than critics assume, when they describe it as requiring a myopic focus singularly on downstream consumer prices to the exclusion of non-price values and the competitive process. Citing last year's challenge to the merger of health insurers Anthem and Cigna, Delrahim stated that the standard protected product variety, quality, innovation, and efficient market allocation as protected forms of consumer welfare.

Protecting innovation is also a focus of the consumer welfare analysis, as demonstrated by the divestitures required as part of the Bayer/Monsanto transaction due to concerns that the transaction would impact research and development in seeds and crop protection products valuable to farmers across America. Finally, the standard itself is also capable of innovation as markets, technologies and economic understanding evolve, Delrahim stated. For example, revealed consumer preferences can help ascribe consumer values to zero-cost goods such as those provided by some Internet platforms.

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