Competition and Innovation: A Non-Zero Sum Approach to Economic Growth

Consumer welfare, which should be the guiding principle of competition policy implementation, is often mistaken for consumer protection.Whereas consumer protection looks to the interests of present consumers, the concept of consumer welfare looks to the long term impacts of a given competition policy and, by extension, the interests of future consumers.The term “consumer welfare,” an economic term of art, refers to the maximization of allocative and productive efficiency.Present consumers benefit from the efficient distribution of goods that results from the maximization of allocative efficiency; future consumers benefit from innovations in production and design that result from the maximization of productive efficiency.Thus, consumer welfare contemplates both present and future consumers. This paper recommends that competition agencies should approach any competition issue with an eye toward consumer welfare in order to improve the market outcomes of competition decisions.