Antitrust Beyond Competition: Market Failures, Total Welfare, and the Challenge of Intramarket Second-Best Tradeoffs

Authors

Peter J. Hammer, University of Michigan Law SchoolFollow

Abstract

Should antitrust law ever sanction the accumulation of market power or permit other restraints of trade if such conduct would increase social welfare? This is the challenge raised by intramarket second- best tradeoffs. The lesson of second-best analysis is that one market failure can sometimes counteract the effects of another market failure. In the presence of multiple market failures, it is conceivable that mergers or other restraints traditionally viewed as anticompetitive may be welfare-enhancing. A social planner, given the mandate of maximizing total welfare, would permit such restraints. Could an antitrust judge come to the same result under a defensible application (or extension) of existing legal doctrine? This question highlights the tensions between an antitrust policy dedicated to preserving "competition" and an antitrust policy dedicated to maximizing total welfare. In doing so, the question tests the theoretical and practical limits of antitrust law, asking whether it is time for antitrust law to move beyond structural understandings of competition and into the realm of express welfare analysis. This Article argues (1) that antitrust law should recognize a defense for private acts that restrain "competition" under the traditional antitrust analysis but advance total welfare, (2) that courts are competent to administer this defense, and (3) that the framework of existing antitrust statutes permits courts to recognize this defense. Today, most judges and scholars would reject intramarket second-best arguments as a justification for otherwise impermissible acts that enhance or maintain private market power, regardless of the credibility of the underlying economic analysis. The reasons given for rejecting such claims, however, would vary with the commentator. Some would argue that intramarket second-best claims have no statutory basis. Others would argue that maximizing total welfare is not the goal of the antitrust laws. Still others, who might be sympathetic to an efficiencyoriented antitrust doctrine, would be skeptical of the ability of the courts to implement a total welfare standard.

Recommended Citation

Peter J. Hammer, Antitrust Beyond Competition: Market Failures, Total Welfare, and the Challenge of Intramarket Second-Best Tradeoffs, 98 Mich. L. Rev. 849 (2000).
Available at: https://repository.law.umich.edu/mlr/vol98/iss4/2