If you've paid any attention to the resurgent debate over antitrust, you've likely met the "consumer welfare standard," which is the cornerstone of post-Reagan monopoly law, and which is widely (and correctly) blamed for our new gilded age of vast, unaccountable monopolies.
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In the years between the New Deal and the Reagan revolution, the cornerstone of antitrust enforcement was the idea that monopolies are just bad - bad for a clean political process free from excessive corporate corruption.
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The watchword of this kind of antitrust is "harmful dominance" - the idea that monopolies hurt workers, suppliers, bystanders, customers, and the legitimacy of the democratic system itself.
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Reagan jettisoned those notions, heeding the cries of the Nixonite criminal Robert Bork and his colleagues from the Chicago School of economics, who claimed that "harmful dominance" was too subjective and gave rise to unpredictable enforcement.
"Consumer welfare" was supposed to replace the squishy, qualitative world of "harmful dominance" with an empirical, quantitative standard for when monopolies would face justice. That standard? Higher prices.
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Consumers are better off when they pay less and get more. One thing monopolies can do is drive up prices and prices are things we can measure. If a merger is likely create high prices, we can block it. If a conglomerate raises prices, we can punish it.
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In practice, this is a nothingburger. Proving consumer welfare harms requires the creation and interpretation of complex mathematical models, and the highest bidder can always hire the most convincing mathematicians to prove that price rises can't be attributed to monopolies.
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Consumer welfare advocates - cheerleaders for monopolies - object to this. They say that the monopolies they provide cover for are incredibly efficient, and that's why the FTC and DOJ antitrust enforcers never have cause to go after them.
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These monopoly-stans insist that they don't like to see consumers ripped off, and if they ever saw a rip-off that could be definitively attributed to market power, they'd fight it like Teddy Roosevelt going after Standard Oil.
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That's not how it works in practice. "The Efficient Queue and the Case Against Dynamic Pricing," a 2020 paper in the @IowaLawReview by U KY law/econ scholar Ramsi A Woodcock documents a widespread consumer welfare harm that's hiding in plain sight.
Woodcock argues that surge pricing is a pure transfer from consumers to producers - that is, a way to use market power to raise prices without any consumer benefit. He says we should ban it.
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Woodcock's paper starts with the fact that shortages occur. The demand for a hot Christmas toy, or a spring break plane ticket, or a seat at Hamilton, or a ride on Space Mountain outstrips the supply. When that happens, some people aren't going to get what they want.
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Merchants have two main tactics for deciding whom to disappoint: They can run an auction (surge pricing), or they can establish a queue.
Economists have historically hated queues. Camping out for a week to get a Tickle Me Elmo is considered wildly unproductive.
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But the information age has given rise to a new kind of queue - the virtual queue, where you add your name to a waiting list or click a link at an appointed hour and see if you got the item or not.
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Virtual queues eliminate the inefficiencies of physical queues, AND they do so without raising prices - the one thing that antitrust law is supposed to ban.
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Woodcock makes some good points about the problems with price gouging as a means to "clear the market" (sell all your inventory to willing buyers). The first one is that price-hikes are "excessive" from a consumer welfare perspective.
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If Tickle Me Elmo is priced at $24.99, then we know that the vendor considered $24.99 to be a fair price for him. When demand spikes and the merchant raises the price to $50, they're pocketing $25.01 that was demonstrably not needed to incentivize them to create the toy.
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That's $25.01 transfered from consumers to producers, which the producers are able to misappropriate because of their market power as sole suppliers of Tickle Me Elmo dolls (IP plays a role here in ensuring this exclusivity).
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Woodcock dismisses arguments that these excessive profits serve a market function by incentivizing others to enter the market. Not only are surges often too brief to provide this incentive, but actual surge pricing exceeds the price needed to bring new sellers to market.
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For example, Uber's surge pricing has been documented to substantially exceed the price at which more drivers turn on their apps. Uber uses surge pricing as a pretence for price-gouging - as a transfer from riders to the company.
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Woodcock's case for prohibiting surge pricing is bolstered by the "administratability" of such a prohibition. Courts have shied away from intervening in pricing because it's hard to set policies and monitor compliance.
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A blanket ban on surge pricing, by contrast, is trivial to enforce, especially in the digital marketplaces where it is most widely practiced: Amazon, Disney World, airlines, Uber, etc.
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The paper falters in the final section, though, in which Woodcock addresses the ways in which queues can be subverted: he says that informal secondary markets are terrible, but they're still preferable to the problems of primary surge-priced markets.
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He misses a couple of points that would make his case stronger. The first is that many price-discrimination markets are intrinsically hostile to resellers, like airline tickets and theme-park admissions, which are nontransferable and keyed to strong identity systems.
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The second point is the way that this "consumer welfare" issue crosses over into "harmful dominance." Many of the secondary markets for surge-priced goods are actually operated by monopolists who ALSO run the primary markets.
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Take Ticketmaster, an ugly, criminal monopoly that has grown to dominate ticketing and venues, thanks in large part to vast sums it laundered for the Saudi Royal family:
Ticketmaster operates its own reseller marketplace, an entire shadow industry for tickets in which they collude with scumbags to ensure that NO tickets go to fans at face value. Instead, they're sold to profiteers, who list them on Ticketmaster's exchange at inflated prices.
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Ticketmaster pockets a commission on each one of these sales - without giving a dime to the performers whose labor they depend on.
Ticketmaster's vertical dominance of the performance industry allows it to get away with this system of wage-theft and price gouging - it's harmful dominance that leads to consumer welfare harms.
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But even with that weak third act, Woodcock's paper is fascinating and powerful - and a rebuttal to "consumer welfare" advocates' claims that they actually care about consumer welfare - if they did, they'd be fighting surge pricing.
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ETA - If you'd like an unrolled version of this thread to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
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