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Breaking up Consumer Welfare’s Antitrust Policy Monopoly
A wine-loving economist we know purchased some nice Bordeaux wines years ago at low prices. The wines have greatly appreciated in value, so that a bottle that cost only 200 at auction. This economist now drinks some of this wine occasionally, but would neither be willing to sell the wine at the auction price nor buy an additional bottle at that price. Thaler (1980) called this pattern—the fact that people often demand much more to give up an object than they would be willing to pay to acquire it—the endowment effect. The example also illustrates what Samuelson and Zeckhauser (1988) call a status quo bias, a preference for the current state that biases the economist against both buying and selling his wine. These anomalies are a manifestation of an asymmetry of value that Kahneman and Tversky (1984) call loss aversion—the disutility of giving up an object is greater that the utility associated with acquiring it. This column documents the evidence supporting endowment effects and status quo biases, and discusses their relation to loss aversion.
The Sherman Antitrust Law is the principal federal statute regulating anti-competitive conduct. This volume examines the rich legislative history and political economy of the Act and the current debates which surround it. The contributors include: Robert Bork, Richard Posner, Charles Rule, Louis Kaplow, and Eleanor Fox.
Chicago School antitrust policy rests upon the premise that the sole purpose of antitrust is to promote economic efficiency. This article shows that this foundation is flawed. The fundamental purpose of antitrust is to protect consumers. To protect purchasers from paying supracompetitive prices when they buy goods or services. This is the "wealth transfer," "theft", "consumer welfare" or "purchaser protection" explanation for antitrust. The article shows that the efficiency view originated in a detailed analysis of the legislative history of the Sherman Act undertaken by Robert Bork. Bork purported to show that Congress only cared about enhancing economic efficiency.To analyze Bork's arguments, this article first explains the underlying economic concepts, including Bork's misleading definition of the term, "consumer surplus" when he should have used the term "total surplus". This article then analyzes the legislative histories of the Sherman Act, Clayton Act, Celler-Kefauver Act, and FTC Act. This analysis demonstrates that Congress's overriding concern when it enacted each law was with protecting consumers from paying supracompetitive prices. Congress did this because it believed that illegally acquired supracompetitive pricing constituted an "unfair" transfer of purchasers' property to firms with market power. Economic efficiency was only a secondary concern.The only exception is the law's goal of protecting small sellers from anticompetitive behavior by buyers with illegally gained monopsony power. This limited concern, however, is just the mirror image of Congress' desire to protect purchasers from exploitation. In both buy-side and sell-side cases, the overarching goal is the same - preventing firms that have unfairly acquired power from imposing noncompetitive prices or non-price terms on those they do business with. In both cases these firms "unfairly" acquire wealth. When conduct presents a conflict between the welfare of consumers and total welfare (e.g., a merger that raises prices but reduces costs), courts should choose purchaser protection over economic efficiency. This conclusion supports a more aggressive approach to many areas of antitrust.
Why are some countries rich and others poor? In 1500, the income differences were small, but they have grown dramatically since Columbus reached America. Since then, the interplay between geography, globalization, technological change, and economic policy has determined the wealth and poverty of nations. The industrial revolution was Britain's path breaking response to the challenge of globalization. Western Europe and North America joined Britain to form a club of rich nations by pursuing four polices-creating a national market by abolishing internal tariffs and investing in transportation, erecting an external tariff to protect their fledgling industries from British competition, banks to stabilize the currency and mobilize domestic savings for investment, and mass education to prepare people for industrial work. Together these countries pioneered new technologies that have made them ever richer. Before the Industrial Revolution, most of the world's manufacturing was done in Asia, but industries from Casablanca to Canton were destroyed by western competition in the nineteenth century, and Asia was transformed into 'underdeveloped countries' specializing in agriculture. The spread of economic development has been slow since modern technology was invented to fit the needs of rich countries and is ill adapted to the economic and geographical conditions of poor countries. A few countries - Japan, Soviet Russia, South Korea, Taiwan, and perhaps China - have, nonetheless, caught up with the West through creative responses to the technological challenge and with Big Push industrialization that has achieved rapid growth through investment coordination. Whether other countries can emulate the success of East Asia is a challenge for the future.
According to Robert Bork's influential analysis, the Sherman Act was expressly instituted by the 51st Congress to advance consumer welfare, but has often been misinterpreted by federal courts handing down anticonsumer decisions. This paper suggests that the political coalition backing the 1890 antitrust statute sought multiple social ends and did not faithfully seek to impose economic efficiency. The key evidence includes historical economic trends, congressional debate, the legislative agenda of Senator John Sherman, and the political conflict generated by the most contentious (and most electorally important) issue of the 51st Congress: the highly protectionist McKinley Tariff Act. Copyright 1992 by Oxford University Press.
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