Section 2 Standards and Consumer Welfare: Some Lessons from the World of Merger Enforcement

Abstract

This Article will discuss the role of “consumer welfare” in judging the legality of single-firm conduct. There is a debate raging in the antitrust world over the standards for judging whether the business decisions of individual firms with a significant degree of market power will run afoul of competition law principles–embodied in the United States in Section 2 of the Sherman Act –and thus potentially give rise to claims for damages by the firm’s customers and rivals. A few core principles are now well established in the United States. First, unilateral conduct has long been immune from antitrust scrutiny when the firm is not yet a monopolist and the firm’s small share of the market or other market conditions make it unlikely that monopoly power could be achieved. Second, “bigness” (or dominance) is no longer equated with “badness.” The concern of antitrust law is instead with the maintenance or acquisition of monopoly power rather than its mere possession or exercise. Firms with monopoly power are thus free to exercise that power by charging high prices and collecting supra-competitive returns. Those returns are the rewards for success that has been achieved lawfully, often by developing products or services that meet an important and previously untapped consumer need. Moreover, high prices are now generally recognized as “procompetitive” acts, at least in the sense that they stimulate entry and investment and other competitive responses. Ideal Section 2 liability rules would accomplish at least three things simultaneously. They should properly identify and prohibit “bad” actions that destroy or impede competition without sufficient justification or sufficient benefit to consumers. At the same time, those rules should not penalize “good” actions that reflect innovative or efficiency-enhancing behavior by the monopolist. Perhaps most importantly, they must provide reasonably clear guidance to firms and their antitrust counselors as to the scope of permissible competitive freedoms and the range of potential legal risks. Otherwise, uncertainty about the application of the rules–including both the risk that courts might reach the wrong results and the high cost of having to defend misguided lawsuits brought by disgruntled rivals–would slacken the drive of all firms that have or might hope to achieve significant market shares. We can hope that the debate over Section 2 liability rules will eventually yield an approach to the law of monopolization that effectively protects consumer welfare by neither over-restricting (or over-deterring) pro-competitive behavior, nor being overly permissive of harmful conduct.