As policymakers become concerned about a potential recession, prioritizing measures that will keep the U.S. economy healthy and competitive is essential. For those who are interested in antitrust policy, a good place to start is enshrining the consumer welfare standard into law.
What Is the Consumer Welfare Standard?
The “consumer welfare standard” is used by federal courts in antitrust cases to determine whether a company’s conduct or merger harms consumers. If followed, the consumer welfare standard enables dismissal of lawsuits with little merit. This stops businesses from wasting countless resources fighting court battles and, instead, allows them to use those resources to develop innovative products and maintain quality for their customers.
Unfortunately, some schools of thought are unhappy with the consumer welfare standard’s proof requirements. These advocates claim competition in the U.S. isn’t thriving, and they want antitrust law to be reformed to make it easier to sue businesses with fewer fact-based requirements. They want antitrust law to focus on competitors, rather than consumer benefits.
This idea is nonsense, which is why it’s failing in court. Of course, some markets need increased competition. But across many industries in the U.S. today, competition is alive, aggressive and well. This is especially true in the retail sector.
In the retail industry alone, an estimated 4.2 million retail establishments in the U.S. – from online marketplaces to brick-and-mortar shops and those in between – provide 32 million jobs and account for 7.7 percent of the U.S. economy’s GDP. In the U.S. social media marketplace, an August 2022 study from the Pew Research Center showed that young people are much more likely to use emerging social media, like TikTok, Instagram or Snapchat, rather than Facebook, Twitter and Reddit. In October 2022, NetChoice produced this one-pager listing 12 different companies competing against each other in the social media marketplace. Just six months later, this list is already out of date due to the popularization of new services like Mastodon, Bluesky and BeReal.
The History of the Consumer Welfare Standard
Prior to the adoption of the consumer welfare standard in the late 1970s, courts and regulators had no consistent way of enforcing America’s antitrust laws. To respond to this dilemma, Judge Robert Bork developed the theory behind the consumer welfare standard.
Bork sought a more objective way for courts and regulators to measure whether consumers—not competitors, who have a financial stake in undermining their rivals—have been wronged. Scholars at the University of Chicago built on Bork’s foundation, arguing that U.S. antitrust law is meant to protect the very benefits that consumers gain from competitive marketplaces. Antitrust therefore should be measured by those principles: lower prices, higher-quality goods and innovation.
In 1979, the Supreme Court officially adopted the consumer welfare standard, and since then, it has guided federal antitrust enforcement.
Examples of How the Consumer Welfare Standard Has Stopped Anti-Competitive Behavior
The consumer welfare standard has been anything but weak against companies that try to avoid competing for consumers’ favor. This can especially be seen in the healthcare sector. Since 2000, the Federal Trade Commission (FTC) has won every single case except for one in the area of hospital merger litigation. It turned around what had been a losing streak in the 1990s, by reviewing past hospital mergers to see which had resulted in patients being worse off, and bringing that analysis to court.
A good, recent example comes from North Dakota in the Eighth Circuit Court of Appeals. In the case Federal Trade Commission v. Sanford Health (2019), the Eighth Circuit affirmed a district court ruling that Sanford Health’s proposed acquisition of Mid Dakota Clinic would harm consumers in the region. The FTC alleged that the merger would give Sanford Health an anticompetitive share of the marketplace, which included a whopping 99.8% market share in the general surgeon services market.
In 2014, the Sixth Circuit Court of Appeals granted the FTC another win, allowing the agency to block the merging of ProMedica Health System and St. Luke’s Hospital in Ohio. The FTC was yet again able to demonstrate under the consumer welfare standard framework that the merger harmed consumers in the Toledo region.
In fact, some experts have correlated market monopolization in healthcare to the government’s own intervention in the marketplace. The Mercatus Center’s Alden Abbott and Kofi Ampaabeng have attributed such consolidation and decline in competition within the hospital sector to the passage of various state and federal-level regulations:
“After the ACA was passed, there was a rapid spike in mergers, from 76 in 2010 to a high of 115 in 2017. This consolidation occurred amid no significant entry of new hospitals. In the mid-1990s there were approximately 5,000 hospitals in the United States, and by 2012 that number had been reduced to just greater than 2,200…This increase in concentration has been associated with higher prices.”
Another notable case was U.S. v. Microsoft, where in 2001 the D.C. Circuit Court of Appeals, headed by Judge Douglas Ginsburg, clarified what “monopoly power” looks like for a large technology company offering a free product when considering a case under the consumer welfare standard. Specifically, the Court held that there was enough evidence to show that Microsoft’s contracts with internet access providers were exclusionary, but other components were not because there was no proof that the deals in question stifled competition. This was important because it further solidified how antitrust needed to be tied to consumer harm.
If the Supreme Court Uses It, Why Does It Need to Be Codified By Congress?
Consumer welfare is currently the standard used by the courts. But because it is merely judicial precedent and not explicitly in a statute, it can be overturned by a future Supreme Court that disagrees. That future dispute is being previewed now by a new generation of progressive antitrust enforcers who disagree with the consumer welfare standard.
Lina Khan, has made it clear through her writing and actions as Federal Trade Commission Chair that she disagrees with the consumer welfare standard and wants it overturned. She has tried to dodge the hurdles the standard creates for dubious antitrust cases by instead looking to the FTC’s “unfair methods of competition” authority, including its purported power to make rules against conduct it deems unfair, rather than enforce against such conduct in the courts.
One of Khan’s latest actions would overrule the laws of 47 states and 30 million business contracts. In the FTC’s proposed rule to ban noncompete agreements as an unfair method of competition, the agency gives itself power over labor contracts (which traditionally fall under the Department of Labor’s jurisdiction)—without congressional approval. This is an unconstitutional power grab that will have massive consequences for the economy.
In another example, Khan’s FTC tried to block Meta’s acquisition of virtual reality fitness developer Within Unlimited, a , a case that the agency’s own staff advised against bringing. In February 2023, a U.S. District Court rejected the lawsuit as it lacked evidence against Meta. And there have been allegations that the FTC violated its own rules in conducting the lawsuit.
While the courts and some federal enforcement officials still follow the consumer welfare standard, Congress can and should provide greater clarity on the doctrine and codify it into law. This would discourage frivolous lawsuits and broad power grabs from future radical enforcers trying to mimic Khan.
Enshrining the consumer welfare standard into law would give entrepreneurs the confidence to invest in the market of their choice so they can do what they do best: provide lower prices, higher-quality goods and more innovation to Americans. It’s time Congress passed this important, consumer-focused antitrust reform.
Interested in learning more about the Consumer Welfare Standard?
- Chris Marchese, NetChoice, “Back To Basics: American Antitrust Explained.”
- NetChoice, “What Is The Consumer Welfare Standard?”
- Jennifer Huddleston, American Action Forum, “Continuing a Principled Approach to Antitrust.”
- Jennifer Huddleston, American Action Forum, “Mergers and Acquisitions Amid Calls for Increasing Antitrust Enforcement.”
- Carl Szabo, Chris Marchese, and Nicole Saad Bembridge, NetChoice, “Restoring Competition to Our Digital Markets before the Senate Judiciary Committee.”
- Alden Abbott and Kofi Ampaabeng, Mercatus Center at George Mason University, “Addressing Anticompetitive Conduct and Consolidation in Healthcare Markets: The Roles of State and Federal Regulation and Antitrust Law.”
- Alden Abbott and Andrew Mercado, Mercatus Center at George Mason University, “Reining In Market-Distorting Federal Regulation.”
- Alden Abbott, Mercatus Center at George Mason University, “US Antitrust Laws: A Primer.”
- Dennis W. Carlton and Ken Heyer, Cato Institute, “Assessing the Revolution in Antitrust.”