The consumer welfare standard is a policy notion that’s achieved a lot notoriety of late. Not surprisingly. Due to errant Biden administration appointees like FTC Chair Lina Khan, the federal government has become more aggressive about attempting to block mergers. So, while conservatives and libertarians are wise to put up a spirited fight against Khan’s suffocation of property rights and reason, their embrace of the consumer welfare standard is puzzling.
Robert Bork popularized the above notion. Supposedly the only justification for government getting in the way of corporate combinations would be if a merger was perceived by the political class as anti-consumer. Which should have the mildly sapient wondering. A lot. What do political types know about consumers, and better yet, what could they possibly know about what’s good for consumers?
These questions rate asking owing to the simple truth that government officials, by virtue of working in government, are constrained by the known. And in commercial terms the known is yesterday’s news. Businesses that want to prosper in an incredibly dynamic marketplace must be constantly evolving. If not, they face obsolescence. What’s important here is that a merger that might make perfect sense to those in the proverbial arena wouldn’t necessarily make sense to government officials. Precisely because businesses are feverishly trying to rush an all-new future into the present, it’s not unreasonable to suggest that proposed mergers are rooted in some pretty outlandish visions of what’s ahead. Government can’t be expected to understand this, or to decide wisely on the matter.
To use but one example, if Walmart had chosen to acquire Amazon in 2001, antitrust types wouldn’t have batted an eye. But if the big box retailer had chosen to purchase Barnes & Noble, Borders Books, or Blockbuster Video in 2000, readers can rest assured that all three combinations would have faced difficult scrutiny in Washington. “Consumer welfare” would have factored. In hindsight, readers hopefully know how pointless this kind of oversight would have been. Companies should be free to merge solely because their shareholders desire just that, and without regard to some gauzy notion of “consumer welfare” that bureaucrats and politicians couldn’t divine on their very best day.
To which some will say consumer welfare is more about prices. If two powerful companies combine such that they dominate a certain market, they could potentially raise the prices of goods and services within said market. They certainly could, but only at the expense of their long-term survival. Seemingly lost on the political class is that wide margins are to other businesses and entrepreneurs the equivalent of blood in the water for sharks. To keep prices artificially high is to place a bull’s eye on oneself. Better yet, businesses are rewarded in the marketplace via higher valuations for pushing down the prices of everything. See Silicon Valley if you doubt this. It’s a reminder that if corporations merged with an eye on gouging customers, it’s highly unlikely that any investment bank would finance their merger. They wouldn’t because few would buy the debt.
Others will contend that government must consider consumer welfare through the prism of what the merged will do with their inventory. The argument here is that a corporate combination could result in so much “market power” that the combined entities could literally withhold goods and services from the marketplace. Try not to laugh. Talk about a merger that no one would finance. More broadly, bureaucrats and politicians with plainly limited business experience seem to ignore just how risky the act of hoarding is. While market goods are being withheld, consumer preferences could change, or new products and services could be rolled out that would render warehoused items undesirable. Seriously, it’s not serious to presume hoarding on the part of businesses.
After which, the only answer to mergers should be that they’re by definition pro-consumer. They are because businesses are in the business of producing wealth for their shareholders, and the only way to do that is to meet the needs of consumers, and perhaps more important, show consumers what they really need. Importantly, bureaucrats can’t decide any of this, thus rendering the consumer welfare standard anti-consumer based on the conceit underlying it that governments have a faint clue what we want and need.