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Revisiting Antitrust: A Modern Perspective

By Frederick Dehmel

Monopoly; a frolic, light-hearted board game for up to 8 players. Yet 7 of these players quickly find their enjoyment dissipating once one player inevitably becomes too strong. Echoing the fury of these 7 helpless players, authorities implemented antitrust policies, to ensure that monopolies could not ravage American society as they do all too often in the game of Monopoly.

The first installment of antitrust - the Sherman Act, was introduced in 1890, and since then competition policy has been subject to many more iterations. The latest of these saw the inception of the consumer welfare standard (‘CWS’ hereafter), which has constituted the backbone of antitrust jurisprudence for the last four decades. At its core, this economic model strives to prevent incursions into consumer welfare by monopolistic behavior, whilst still permitting firms to compete and innovate.

The consumer welfare model has enjoyed economic and political consensus over this period, and for good reason; It offers a clear, congruous and coherent method to evaluate the ramifications of a given firm’s conduct on their industry. By focusing solely on consequences to consumers, the CWS bestows legislators with a tangible metric to assess different companies’ impacts on markets, thus tethering competition policy to economic theory, immunizing antitrust enforcement from debasement by ideological biases regulators may hold, even demonstrating uniformity across different administrations [1].

However, an ever growing proportion of academics are dissatisfied with the current practice, contending that the CWS is antiquated and out of touch with today’s reality. They argue that the present paradigm is hindered by the sole focus on consumer interests, and the subsequent neglect of other impediments to societal welfare. Moreover, adversaries of this doctrine further assert that the consumer welfare model has been suboptimal even by its own standards, failing to adhere to its principle of protecting consumers. Instead, it has fostered higher consumer prices without any discernible efficiency gains [2]. The movement against the CWS accuses the current antitrust practice of facilitating the enumeration of multi-billion dollar monopolies, and the ensuing consequences of increased wealth inequality and losses in efficiencies and output. Based on these claims, the self-proclaimed “new brandeisians” (reverberating the philosophy of Louis Brandeis) promote abandoning the consumer welfare model entirely. Whilst these allegations clarify the need for legislative amendments to antitrust policy, the complete desertion of such an accomplished framework seems extreme. Instead, this essay presents a handful of policy changes that could reframe the doctrine to address some of its imperfections.

As mentioned previously, the Achilles heel of the CWS is its overemphasis on consumer welfare, more specifically the price the consumer has to pay. The legislation, when ruling on potentially monopolistic behavior, completely ignores any impact on producer welfare, which can in some cases lead to regulations resulting in a net social welfare loss [3].


An effective way to combat this pitfall in contemporary antitrust practice is by broadening the CWS to include considerations of producer welfare, under a total welfare standard. This change can be achieved with relative simplicity through the implementation of the Williamson Trade-o model [4] (figure 1). This model compares increases in producer welfare due to the cost reductions associated with monopolistic synergies, against decreases in consumer welfare caused by higher prices due to lower market concentration. In theory, if the gain in producer welfare generated by a given corporate activity exceeds the resulting loss in consumer welfare, the allocative inefficiency and loss in competition would be offset and thus lead to an overall increase in total welfare. This in turn should allow said activity to escape the condemnation of antitrust regulation.

However this model, like many others in microeconomics, relies on assumptions which may not hold up in reality; for one, it assumes that markets are informationally symmetrical, which they rarely are. Firm executives will always know more about their bottom line than regulators, which complicates decisions based on this model. Moreover, when analyzing the efficiencies of monopolies, a more harrowing concern surrounding Williamson’s model is highlighted; the aggravation of wealth inequality. How a monopoly chooses to reinvest its supernormal profits can have polar opposite impacts on economic distribution. For instance, whether a monopoly employs its supernormal profits to disburse dividends to its shareholders, or invests into infrastructure facilitating job creation, has a similar impact on short-term total welfare, yet breeds drastically different consequences for long-term economic inequality. However, financial inequality is a problem prevalent throughout the entire economy. Hence, regulators' foremost objective should be to maximize economic efficiency and output, and allow for distributional considerations to be addressed by more general economy-wide inequality policies, such as raising the minimum wage.

Additionally, the transition towards a total welfare standard using the Williamson Trade-o model could, if left unregulated, exacerbate monopolistic rent. Under this model, companies can obtain greater monopoly power, permitting them to dictate higher prices than what is deemed competitive or fair; under the law of profit maximization, firms will strive to anchor prices where MC=MR. Ipso facto, the market experiences deadweight loss as these conglomerates deviate from perfect allocative efficiency (P=MR) in favor of maximizing profits. (figure 2)[5]

A solution proposed by scholars is to simply price restrict producers at P=MR, which is the most allocatively (sic) efficient scenario. However this premise shoulders several fallacies; companies, such as natural monopolies, who have a high upfront cost (and hence a high average cost) cannot survive this pricing model. More paradoxically, this system could stifle innovation, as although it would increase competition, eradicating the incentive for companies to lower their marginal costs would have an adverse effect on innovation as a whole. These discrepancies could be resolved by administering a variable and flexible pricing system inline with Ramsey pricing policy [6] . This archetype would set an artificial price ceiling using Frank Ramsey’s infamous pricing mechanism, namely a price markup over the marginal cost proportional to the inverse of the price elasticity of demand, the logic being that the demand for inelastic products is less vulnerable to price rises than that of elastic goods. Ramsey’s Pricing model is chosen as it is the next best alternative to solving deadweight welfare loss in markets, when Marginal-Cost Pricing is not applicable.

Moreover, the stark change monopolies have undergone since the days of the Sherman Act further demands for antitrust to be revised. Back then companies such as Standard Oil or American Tobacco terrorized consumers with outrageous prices, engendering reduced output, to the detriment of society. These companies were subsequently dealt with under the Sherman Act [7] .

However in today’s age, the harm that tech monopolies such as Amazon or Google cause are not obvious, as often there is no cost to consumers, rendering the CWS ill equipped to regulate them. This is because these companies are monopsonies, acting as the only buyer in a market instead of the only seller. In these markets, producers in lieu of consumers are forced to bear the deadweight welfare loss precipitated by monopsonies, as producers have no choice but to sell their goods at prices prescribed by monopsonies. The most effective countermeasure to monopsonies is extending the CWS to include producer welfare, as although there have been examples of regulators employing the CWS to target monopsonies[8], the omission of producer welfare necessitates the adoption of a total welfare standard.

However, the abuse of monopsonistic (sic) power is far from the only anticompetitive practice companies such as Amazon are guilty of. The most notable of these crimes is the abuse of their platform power to facilitate exclusionary conduct, for example Amazon granting preferential treatment to sellers who utilise their delivery system. Around the world these firms have been convicted for these crimes, and charged with record-breaking fines[9], yet in the US they remain ‘under investigation”, as per FTC. Exclusionary conduct is strictly outlawed by the Sherman Act[10] and has been successful in suspending such conduct; yet due to the digital nature of these firm’s business models, they have escaped regulation unscathed. The essence of this loophole in antitrust is one of definition; the essential facilities doctrine obligates monopolies who own “a facility essential to other competitors” (e.g. Amazon’s online merchant platform) to provide reasonable shared access. By adapting the phrasing of this doctrine, it could include digital assets to serve as “facilities'', forcing these corporations to relinquish their inequitable grip over their platforms.

These proposed policy changes should yield more favorable conditions for industries, whilst allowing for a certain degree of warranted monopolisation (sic). The amendments to the antitrust framework would regulate prices resulting in short-term consumer welfare gains, while providing incentives to innovate. These policies would also cultivate long-term term gains in sciences, output and total welfare, whilst not deviating too far from the current doctrine.

Concluding Remarks

The recent media onslaught on tech giants has reinvigorated the discourse surrounding antitrust, and whether it is necessary to update its framework. While the cases against Amazon and its counterparts do disproportionately skew the severity of the issue, they are symptomatic of issues prevalent within the current doctrine which require modification.

Foot Notes

[1] See Wu, Tim, The Curse of Bigness: Antitrust in the New Gilded Age. [2]A gradually growing body of work has proven this claim, namely The Division of Research & Statistics & Monetary Aairs, Evidence for the Eects of Mergers on Market Power and Eciency; Kwoka, John, Mergers, Merger Control and Remedies: A Retrospective Analysis of U.S. Policy; Council Economic Advisors. Benefits of Competition and Indicators of Market Power.

[3] Many mergers in U.S. history, such as the Exxon-Mobil merger received enormous amounts of backlash, nearly blocking the merger from succeeding. However, this merger is a case study for the success of horizontal mergers, yielding increased production and innovation. [4] The Williamson Trade-O Model was first presented by Nobel Laureate Oliver E. Williamson in 1968. Although its typical application is within vertical mergers, its framework can easily be expanded to incorporate other potential synergies, such as acquiring of smaller firms or obtaining exclusive intellectual property.

[5] This is a classical Monopoly diagram. The Average Total Cost curve (ATC) has been omitted for simplicity.

[6] Ramsey Pricing, or more formally Ramsey-Boiteux Pricing was conceptualized in 1956, and is a second-best (as in it is the best possible solution outside of Marginal-Cost Pricing) policy surrounding price limitations for monopolies. [7] Standard Oil Co. of New Jersey v. United States(1911); United States v. American Tobacco Co. (1911)

[8] FTC Investigated Staples’ acquisition of Essendant; see Sycamore Partners Fact File [9] Amazon was charged $1.3Bn by antitrust regulators in Italy; Google was fined $8Bn through three different antitrust penalties by the EU Executive Commission between 2017 and 2019, with a $5Bn US fine representing the largest of its kind issued by Brussels [10] Sherman Act, Section 2: "the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct”

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