Consumer Welfare

If we look back to the beginnings of competition law or antitrust law (particularly in the United States during the late 19th and early 20th centuries), we can observe that legislators and courts pursued a plurality of objectives: limiting excessive economic power, protecting small traders, preventing price hikes, preserving the freedom of enterprise, and even responding to political pressure against trusts (business conglomerates) perceived as risks to democracy (May, 1989, 286-290).

However, during this era, there was no explicit mention of “consumer welfare.” Instead, the courts referred to “unreasonable restraints of trade,” “monopolization,” “abuse,” or “market power,” but lacked a unified criterion that prioritized consumers and/or producers, or that translated these concepts into a quantifiable welfare standard.

By the beginning of the 20th century, consumer surplus was already being used as a standard tool for competitive analysis. Although the direct link to antitrust was not yet clear, the postulates of A. Marshall and the consolidation of Arthur Pigou’s welfare theory paved the way for competition policy to begin coining the term welfare in the analysis of conduct and mergers.

In this context, Pigou’s welfare economics worked as a framework to evaluate social conditions based on the sum of individual utilities, emphasizing market failures and potential corrections through taxes and regulations. While Pigou did not refer to antitrust law in the modern sense, his approach contributed to the idea that economic policy should be oriented toward maximizing social welfare, usually understood as the sum of consumer and producer surpluses.

The passage of consumer welfare (or total welfare) from economics to law had its turning point in the work of Robert Bork, specifically in his famous book “The Antitrust Paradox” (1978). In his work, Bork argued that —based on the legislative history of the U.S. Congress when enacting the Sherman Act (1890) and the preceding economic logic of Marshall and Pigou— the only legitimate objective of antitrust rules should be the maximization of consumer welfare (Bork, 1978, 51-55). Consequently, the decisions of competition enforcement authorities should be guided by consumer welfare, even in cases where this value conflicts with others.

It is important to clarify that what Bork understood as “consumer welfare” was equated with the idea of social or total welfare —that is, general economic efficiency. Therefore, the use of the term “consumer” in Bork’s theory is largely nominal. Furthermore, by prioritizing economic efficiency, Bork’s stance readily accepted the existence of large companies with significant market power, provided this was accompanied by lower prices for consumers and greater innovation. For the same reasons, the notion of total welfare excluded the protection of small businesses (to the extent that they were less efficient) and purely redistributive or political goals (Ibid, 69-71).

Thus, the “paradox” Bork identified was that the Supreme Court’s reading of antitrust law in the first half of the 20th century maintained inefficient market structures. This, in turn, harmed consumers through higher prices and less innovation, contradicting the purpose of safeguarding consumer welfare. For example, Bork was highly critical of Court rulings that treated vertical restraints between producers and distributors as per se illegal, given that these agreements could generate efficiency gains and enable innovation.

Bork’s approach signaled a shift in the course of U.S. Supreme Court jurisprudence in the 1980s. Indeed, starting with the case Reiter v. Sonotone (1979) and subsequent decisions, the Court adopted the concept of “consumer welfare” to ground its decisions and redefine the purpose of the Sherman Act, although it did not exhaustively define the term’s specific content.

Faced with the indeterminacy of the standard proposed by Bork, different schools of thought emerged, contributing to a process of refining and clarifying the concept. In the 1970s and 80s, the Chicago School not only proposed a reformulation of the consumer welfare standard but also pushed for a methodological shift that placed economic analysis at the heart of competition law interpretation (see, for example, Verizon v. Trinko, 2004). Key proponents, in addition to Bork himself, included George Stigler, Richard Posner, and Milton Friedman.

Specifically, this movement —which gained even greater momentum during the Reagan administration (1981–1989)— positioned economic efficiency as the sole purpose of competition law, with neoclassical price theory serving as the appropriate tool to measure its maximization. Furthermore, this school trusted in the self-regulating capacity of markets (viewing state intervention as harmful and price-distorting) and viewed the existence of monopolies as an occasional, unstable, and transitory result of the competitive process (Katz, 2020, 414-415).

Later, in the 1990s, the so-called “Post-Chicago” school maintained the consumer welfare standard’s grammar but developed more sophisticated models. These models demonstrated that certain vertical practices or seemingly efficient mergers could potentially harm consumers and reduce total welfare in the presence of factors such as information asymmetries or network effects (Farrel and Katz, 2006, 2). In other words, this new current was more skeptical of the market’s ability to self-regulate and of the efficiency justifications for various market behaviors (such as vertical restraints and tying), promoting more rigorous enforcement by competition agencies.

Along these lines, authors like Farrell and Katz reaffirmed the idea that the consumer welfare standard translated to the maximization of total welfare. However, they added a caveat: applying this standard in enforcement decisions alone does not guarantee real social welfare, especially in distributive terms (Ibid, 14-15). Thus, the authors argued that since companies formulate strategies based on private profitability rather than social welfare, the application of a (strictly defined) consumer welfare standard by agencies might be the best way to achieve total welfare, provided that other public policies address redistributive goals (Ibid, 31-36).

Following the adoption of the consumer welfare standard thanks to the efforts of Bork and other members of the Chicago School, some people started to criticize its conceptual ambiguity. For instance, Herbert Hovenkamp, while acknowledging the Chicago School’s value in rationalizing competition policy, disagreed with their view of Bork’s postulates. He argued this view confused total welfare (which Bork intended to protect) and consumer welfare (which refers to the aforementioned difference between the price consumers are willing to pay and the price they actually pay) (Hovenkamp, 1980, 1017-1019).

Furthermore, Hovenkamp argued that the Chicago School relied on an oversimplification of certain economic assumptions that do not hold true, as well as an excessive trust in the capacity of markets to self-correct in the long run.

In a similar vein, Barak Orbach pointed out that the conceptual confusion regarding the standard created a new “paradox.” He noted that the lack of precision was not merely an academic problem but had practical consequences for how enforcement decisions are made (Orbach, 2011, 162). This ambiguity could lead to a reduction in both consumer and total welfare (see, for example, Ohio v. American Express, 2018).

In the mid-2010s, the “New Brandeis” or Neo-Brandeisian movement emerged, arguing that the consumer welfare standard had excessively narrowed the scope of antitrust (focusing only on prices). This focus, they claimed, inhibits antitrust from engaging with contemporary problems, such as rising concentration in digital platforms markets, reduced quality, technological stagnation, power over workers, or risks to democracy (for more information, see the Utah Statement (2019)).

Among its advocates, two academics appointed to public office under the Biden administration (2021–2025) stand out. The first is Lina Khan, former Chair of the U.S. Federal Trade Commission (FTC), who, in her article Amazon’s Antitrust Paradox (2017), argued that a focus on prices and consumer welfare (in its strict sense) is incapable of capturing the logic of platforms like Amazon. Such platforms can maintain low or even predatory prices for long periods while building dominant positions and structural conflicts of interest across multiple markets (Khan, 2017). Thus, for Khan, it is necessary to return to a standard anchored in the protection of the competitive process and market structure, even at the cost of abandoning price-related considerations.

The second academic is Tim Wu (former member of the National Economic Council), who in his article After Consumer Welfare, Now What? (2018) proposed abandoning the consumer welfare standard as the guiding criterion of competition law and replacing it with the “protection of competition” standard. For Wu, this vision is not only more in line with the original legislative intent of the U.S. Congress (reflected in the Sherman and Clayton Acts) but also better suited to address harms to dynamic efficiency and the contemporary challenges posed by the power of digital platforms (Wu, 2018, 8-9).

Strong criticisms have emerged in response to the Neo-Brandeisian movement. For example, Carl Shapiro, in Antitrust in a Time of Populism (2017), acknowledged that increased concentration and public perception of competition authorities’ decisions have put the consumer welfare standard under pressure. In response, he proposed strengthening antitrust enforcement within the existing framework, making it more sensitive to potential effects on innovation and market power, but without replacing it with “vague” standards focused on democracy or distribution (Shapiro, 2018).

Other authors, such as Lambert and Cooper, have criticized Neo-Brandeisianism for what they see as excessive politicization and ideological instrumentalization of competition enforcement tools. In their view, the consumer welfare standard, properly understood, remains the best way to discipline economic power without turning antitrust into a general policy instrument (Lambert and Cooper, 2023, 28-34).

In the U.S., the consumer welfare standard remains dominant. The jurisprudence of the Supreme Court, primarily influenced by Bork and neoclassical economics, continues to reference “consumer welfare” as the objective of antitrust.

Furthermore, the agencies themselves defend this standard, as in the case of the FTC, which explicitly states that “for over 100 years, the antitrust laws have had the same basic objective: to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up.” (see “Guide to Antitrust Laws”).

However, the consensus today is more fragile than it was two decades ago, as it faces different currents that defned —to a greater or lesser extent— the need to make the standard more flexible to address current concerns (Melamed and Petit, 2019). To this end, proposals have emerged to improve tools for measuring effects, strengthen the analysis of potentially anticompetitive concentrations, or pay closer attention to dynamic efficiency (Wilson, 2019).

Since its inception, European Union (EU) competition law has pursued —in addition to efficiency and consumer welfare— various objectives, such as the integration of the European common market, the protection of the competitive structure and process, and, more recently, goals like sustainability and fairness (see, for example, Post Danmark I, 2012).

Thus, although the term “consumer welfare” is present in various documents drafted by the European Commission (for instance, in merger and abuse guidelines), Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) establish the “trade between Member States” and the “competition process” as goals to be pursued, reflecting a much broader conception.

This structuralist approach finds its early roots in the Ordoliberal school of the early 20th century, whose main exponent was the German economist Ludwig Erhard. Ordoliberalism defends free competition and private initiative not only for their link to efficiency but also for their capacity to disperse economic power and, consequently, political power. Additionally, EU competition law seeks to strengthen and energize the European common market by eliminating trade barriers and guaranteeing the free movement of goods between Member States. All of the above was reflected in the Treaty of Rome of 1957 (the treaty that established the European Economic Community and laid the foundation for the European Union).

To highlight the differences between the two regimes, Eleanor Fox conducted a comparison between the U.S. and EU systems. She noted that while both share basic prohibitions on conduct such as cartels or abuse of a dominant position, the EU has incorporated distributive and industrial policy concerns —such as support for small and medium-sized enterprises (SMEs), fairness, and technological development— accepting greater state intervention and a more regulatory role than the American model (Fox, 1999).

In the Chilean case, as with the vast majority of legislation worldwide, the competition law act (Law Decree 211, or DL 211), does not explicitly mention consumer welfare as a standard to be followed or as a protected legal value.

Article 1 of the law states that “[T]he purpose of this law is to promote and defend free competition [(“libre Competencia”)] in the markets.” From the perspective of legal hermeneutics, the omission of a more exhaustive list or a more specific objective was a deliberate decision by the legislator.

On the other hand, as noted by Ricardo Paredes and Nicolás Rojas (an economist judge and the president judge of the Tribunal de Defensa de la Libre Competencia or “TDLC,” respectively, by 2025), observing the jurisprudential evolution of the TDLC and, especially, the Supreme Court, one can see a shift from an emphasis on protecting the economic freedom of market agents toward a more modern approach, closer to the consumer welfare standard (Paredes y Rojas, 2025, 7-8).

However, according to the authors, the transition from a general welfare standard to one more oriented toward the consumer does not represent a conceptual break in Chilean competition law, but the result of a slow process of evolution and convergence.

It is also worth noting that the Chilean system has not incorporated alternative objectives (such as income redistribution, the deconcentration of economic power, or the protection of democracy). References to principles such as non-discrimination or the autonomy of agents operate only as instrumental means to ensure competitive and efficient markets, rather than as independent goals of competition law (Ibid, 23-25).

In Reiter v. Sonotone, the United States Supreme Court ruled on whether final consumers (in this case, buyers of hearing aids) could be considered “persons injured in their property” for the purposes of filing private lawsuits under Section 4 of the Clayton Act. The Court held unanimously that they could, affirming that when consumers pay an artificially high price due to anticompetitive conduct, their monetary loss constitutes a compensable property injury.

Furthermore, in its ruling, the Court stated that antitrust laws “were enacted to protect consumers from artificially high prices and other anticompetitive conduct,” interpreting the statute through a pro-consumer lens. While the text of the decision does not explicitly formulate an economic consumer welfare standard, it does establish a legal standard of protection for the final consumer as something directly safeguarded by antitrust law.

In U.S. v. Microsoft, the D.C. Circuit Court of Appeals held that Microsoft’s conduct in the operating systems market constituted an anticompetitive practice because it suppressed innovation. Microsoft used exclusive dealing agreements, installation restrictions, and various technical integration mechanisms to prevent these technologies from becoming alternative platforms capable of eroding its monopoly. The court emphasized that even if consumers did not face immediate price increases, the conduct reduced their welfare by preventing the emergence of superior products, technological diversity, and dynamic competition.

This is a paradigmatic case because it recognizes innovation as a new dimension of consumer welfare. The Court expressly stated that antitrust law protects consumers not only from overcharges but also from the loss of quality, variety, or future choice. The strategic exclusion of innovative rivals harmed the competitive process in technological markets characterized by strong network effects and high switching costs, which was sufficient to prove antitrust injury. Consequently, Microsoft consolidated a Post-Chicago view under which the protection of innovation is essential to ensuring consumer welfare in tech industries, even in the absence of observable short-term price effects.

In Post Danmark I (2012), the Court of Justice of the European Union (CJEU) analyzed whether discounts offered by a dominant postal operator constituted an abuse of a dominant position under Article 102 TFEU. The Court held that the assessment should focus on whether the conduct was likely to exclude “equally efficient competitors,” emphasizing that not every price reduction by a dominant firm is abusive —only those that distort the conditions of the competitive process. Although the case introduced more analytical elements closer to the “competition on the merits” test, the foundation of the analysis remained the protection of “effective competition” rather than the determination of effects on final prices or direct consumer benefits.

From the perspective of what was protected, Post Danmark I clearly reflects the traditional EU focus on preserving the competitive process and preventing exclusionary practices that alter market structure, even when their effects on consumer welfare are not obvious in the short term. The Court reaffirmed that the objective of European competition law is not limited to maximizing efficiency or consumer surplus, but to guaranteeing real and undistorted conditions of rivalry.