Antitrust policy is slowly emerging from its 40-year hibernation caused by acceptance of the Chicago School’s Consumer Welfare Standard. A striking example of the renewal is the “Prohibition of Anticompetitive Mergers” bill introduced by Senator Warren and Representative Jones that, among other things, prohibits mergers valued above $5 Billion. The justification for this provision is that enormous conglomerations of money and power threaten the democratic process. Another signal of the antitrust revitalization is the appointment of Lina Khan as the Chair of the Federal Trade Commission. Chair Khan has written extensively on the importance of competition policy for the protection of labor and stemming the growth in income inequality.
The broadening of antitrust goals has met with opposition from economists, who contrast the new thinking with the Consumer Welfare Standard, which was built upon Alfred Marshall’s model of consumer surplus. In my new INET Working paper, “An Economic Defense of Multiple Antitrust Goals: Reversing Income Inequality and Promoting Political Democracy” I contend that modern economic theory supports the new antitrust renewal. The Consumer Welfare Standard is outdated and suffers from several defects: (1) It employs a narrow, unworkable measure of welfare; (2) It excludes important sources of welfare based on the assumption that antitrust seeks only to maximize wealth, an economically flawed concept; (3) It assumes a constant and equal individual marginal utility of money; and (4) It is often combined with extraneous ideological goals that are incompatible with welfare economics.
Even with these defects, however, if applied consistent with its theoretical underpinnings, the need to consider the transfer of labor rents resulting from a merger or dominant firm conduct can be supported by the Consumer Welfare Standard. However, to undergird such important broader goals as the Warren and Jones’ bill and protection of political democracy, requires that the Consumer Welfare Standard be replaced with the General Welfare Standard. The General Welfare Standard consists of modern welfare economics modified to accommodate objective analyses of human welfare and purged of inconsistencies.