The Output-Welfare Fallacy

Abstract

A fallacy lies at the core of modern antitrust. The same scholars who successfully advanced a singular consumer-welfare goal simultaneously argued that output effects should be the exclusive criterion for analysis. This output–welfare framework entered mainstream discourse, was endorsed by enforcers and judges, and played a pivotal role in the Supreme Court’s recent Ohio v. American Express opinion. Yet despite its centrality, outputism has largely escaped notice. When exposed to systematic evaluation, the previously assumed link between output and welfare breaks down. A wide variety of conduct can push output and welfare in opposite directions. Moreover, purely outputist analysis is often unworkable in markets—for labor, social networking, online search, and more—that are of particular interest to contemporary antitrust. Recognizing the Output–Welfare Fallacy offers substantial payoffs. It illuminates and undercuts a fundamental illogic that motivates outputist judicial decisions, which warrant swift reversal. Market power can be defined as the power to control competition, rather than power to profitably reduce output. Plaintiffs need not demonstrate an output reduction to carry their initial burden of proof. Conversely, defendants need not prove that output increased in order to make out a valid procompetitive justification. In general, moving beyond the narrow confines of output-based analysis enables the application of a more coherent, practical, and efficient antitrust framework.