A Reputational View of Antitrust’s Consumer Welfare Standard

A reform movement is underway in antitrust. Citing prior enforcement failures, deviations from the original intent of the antitrust laws, and overall rising levels of sector concentration, some are seeking to fundamentally alter or altogether replace the current consumer welfare standard, which has guided courts over the past 50 years. This policy push has sparked an intense debate on the best approach to antitrust law enforcement. In this Article, we examine a previously unexplored potential social cost from moving away from the consumer welfare standard: a loss in the information value to the public from a finding of liability. A virtue of the current standard is the knowledge that firms who violate the antitrust laws have harmed consumers. This simple reality is a direct, easy-to-interpret signal to market participants and investors. In contrast, a broader and more nebulous standard, such as a “public interest” approach—which has been proposed by some academics and agency officials—could conceivably water down the information value of a finding of liability. In essence, the greater license that regulators and courts have to condemn a business practice beyond a finding of harm to consumers, then the noisier the signal to the public about what the verdict actually means. We can call this phenomenon “the stigma dilution effect.” To that end, we develop a formal model to gain insight into the role of reputation in the enforcement and deterrence effects of antitrust laws. The model reveals broadening the welfare standard is likely to weaken the reputational impact of antitrust violations. This dilution can, in turn, have implications which go against what the proponents of abolishing the consumer welfare standard desire. Namely, a new standard could increase, rather than decrease, the frequency of conduct they seek to deter. Thus, our analysis suggests that there may be important and underappreciated costs associated with departures from the consumer welfare standard. In fact, the presence of reputational considerations suggests that these departures can produce effects contrary to the stated goals of their proponents