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Hastings Business Law Journal

Authors

Alan Devlin

Abstract

Instances in which purchasers collude to depress price raise complex enforcement issues if one adheres literally to the widely accepted consumer welfare standard in antitrust analysis. One might imagine that reduced input costs above will translate into lower prices below. However, in-depth economic analysis reveals a counter-intuitive insight: the reduction in price upstream may lead to an inefficient supply-side substitution in production, resulting in higher levels of marginal cost and, hence, downstream prices. Whether downstream harm to consumers ultimately transpires depends on a host of variables including the price elasticity of demand facing sellers in the downstream market, the upstream input elasticity of supply, and the balance of upstream market power. Yet, from an aggregate welfare perspective, it is clear that market distortions typically accompany monopsony pricing, irrespective of consumer harm. In these circumstances, the classic interpretation of the consumer welfare norm should be revisited.

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