7 - The obligation to maximize welfare

Summary

As we discussed in Chapter 6, antitrust enforcement is a case of the government using legal and regulatory means to address a nonwrongful externality. To this end, authorities try to reduce harm that results from anticompetitive behavior even though it violates no rights. However, this type of externality is not addressed by subtly adjusting incentives with Pigouvian taxes or acknowledging property rights to enable the application of the Coase theorem. Instead, the force of law in the form of injunctions or criminal penalties is brought down on firms who conduct their business in ways that fail to maximize welfare.

Looked at another way, the enforcement of antitrust law implies that firms have a responsibility to contribute to, if not maximize, consumer surplus or total welfare. From the perspective of antitrust advocates and enforcers, firms exist not to further the interests of their owners but to benefit society. If they fail to do this to a significant extent, they are breaking the law and can be sanctioned. This may be the most controversial but least appreciated aspect of the nature of antitrust and competition law in general. In this chapter we’ll explore several dimensions of this unique obligation, including why it's such a problem, how it can possibly be justified, and what its enforcement implies about the status of prosecuted firms under the law.

To what lengths?

To be sure, increasing welfare or well-being is a good thing, and not just according to utilitarians. All else the same, nearly everyone believes that making society better off is ethically good, even if it is not necessarily everyone's primary moral focus. But that qualification, “all else the same,” is doing a lot of work—the devil, as they say, is in the details.

The literature on utilitarianism is full of “nightmare examples” of people doing horrible things in the interest of maximizing welfare. A common one has a dictator facing a violent popular revolt, so he picks one person out of the crowd and executes them to calm the crowd, saving not only his own neck but also the many lives that would likely have been lost in the uprising. Other examples similarly lean into supervillain territory, such as Ozymandias from the graphic novel Watchmen, who fakes an alien invasion to unite the hostile nations of the world against a common enemy.