Why the Consumer Welfare Standard Remains the Best Guide for Promoting Competition

January 2019

Why the Consumer Welfare Standard Remains the Best Guide for Promoting Competition By Joe Kennedy (Information Technology and Innovation Foundation)¹

Introduction

The central goal of antitrust policy should be to maintain competitive markets so that companies feel continued pressure to improve quality, lower prices, and boost productivity through constant innovation. Observers have always debated the best way to accomplish this goal in specific cases. But for roughly 40 years the field has enjoyed a broad consensus on the main criteria that should guide policymakers: the consumer welfare standard (CWS). CWS is used to evaluate mergers and competitive practices by whether they harm economic welfare. If they do, then regulators step in to either prevent them or to negotiate agreements to remove the harm. In the absence of harmful conduct regulators generally let market forces determine the best outcome.

The adherence to the CWS implies two important tenets. The first is that when evaluating mergers or alleged anticompetitive behavior policymakers should base their decisions on a detailed empirical study of the markets in question. While this can be difficult, current law does not allow regulators to act without developing a strong case that business actions would result in probable harm. Second, regulators and judges do not base their decisions on an idealized version of what the economy should look like. They neither attack nor favor pricing practices, market int