September 15 Tuesday

The Output-Welfare Fallacy; John Newman

  • Tuesday, September 15, 2020 at 12:00PM - 1:30PM
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Description

With each passing day, Silicon Valley tech giants face increasingly intense antitrust scrutiny.  Private-enforcement actions have been filed, agency investigations are ongoing, and Congress has entered the fray.  Looming over any attempt to enforce antitrust laws in digital markets is the Supreme Court’s recent Ohio v. American Express decision.  Many observers have rightly criticized AmEx’s bizarre “two-sided market” analysis.  But that may not be its most harmful legacy.  Instead, AmEx’s insistence that plaintiffs prove a particular type of effect—an output reduction—may claim that dubious honor.

This output obsession has deep roots in antitrust law and economics.  Critics of the status quo often point out that antitrust became far too narrow under the influence of the Chicago School in the 1960s and 1970s.  The primary critique, though, is that “consumer welfare” antitrust focuses too narrowly on prices.  What even the most vocal critics tend to misunderstand is that Chicagoans actually embraced output—not prices—as the sine qua non of consumer welfare antitrust.  The output-only vision quickly entered mainstream antitrust commentary, was embraced by Reagan-era federal enforcers, and finally reached its apex in Ohio v. AmEx, where the Supreme Court required proof of lower output despite already having proof of higher prices and stifled competition. 

Proving output effects in a case involving complex digital products will often be difficult or impossible.  More fundamentally, output cannot serve as a reliable indicator of welfare effects.  Ridding antitrust of this Output-Welfare Fallacy forces a long-overdue reckoning with foundational questions about antitrust’s core values.  Without the crutch of output analysis to prop up the consumer-welfare framework, antitrust policy can finally move beyond the ossified confines of Chicago.

John Newman is an Associate Professor of Law at the University of Miami School of Law.

 

 

 

Sponsoring Organization(s)

Information Society Project (ISP) and Thurman Arnold Project (TAP@Yale)