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The antitrust consumer welfare paradox

Barak Orbach, Journal of Competition Law & Economics, Vol. 7, No. 1, pp. 133-164, 2011; Arizona Legal Studies Discussion Paper No. 10-07.
NB: This article has been nominated by the Academic Steering Committee for the academic category, economics section of the 2012 Antitrust Writing Awards. Click here for all winning-awards articles

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Readers vote is closed since March 1st, 2012. Readers’ vote has nominated 2 articles for each of the Awards. This short list has been communicated to the Board, with the articles nominated by the Steering Committees. The Board will decide on the award-winning articles on March 27, at the Awards ceremony to take place in DC. See vote results online here.

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“Consumer welfare” is the only articulated goal of antitrust law in the United States. It became the governing standard following the 1978 publication of Robert Bork’s The Antitrust Paradox. The consumer welfare standard has been instrumental to the implementation and enforcement of antitrust laws. Courts believe they understand this standard, although they have failed to effectively analyze it. Scholars hold various views about the desirable interpretations of the standard, and they use judicial statements selectively to substantiate their personal views. This Article introduces the Antitrust Consumer Welfare Paradox: It shows that, under all present interpretations of the term “consumer welfare,” there are several sets of circumstances in which the application of antitrust laws may hurt consumers and reduce total social welfare. The Article shows that Bork’s use of the term “consumer welfare” obscured basic concepts in economics. The Article clarifies that the antitrust methodology permits only surplus analysis and does not accommodate welfare analysis. It explains the conceptual differences between the terms “surplus” and “welfare” and the relevant implications of each. The Article further explains the differences between two other competing standards - “consumer surplus” and “total surplus” - that presently serve as proposed interpretations for the term “consumer welfare.” Each interpretation has its limits and the necessary analytical progress requires conceptual clarity. The Article argues that, whatever good ends the “consumer welfare” phrase once may have served, antitrust law should now lay it to rest.

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