For decades the consumer welfare standard has been the primary basis on which antitrust enforcement decisions are made. That standard asks about the effect actions and market dominance have on actual consumers. Despite this long tradition, the Biden administration is bringing its first major tech antitrust case in U.S. v. Google and their approach will deemphasize the consumer welfare standard.
The lawsuit involving Google and the Department of Justice (DOJ) along with a number of State Attorneys General started oral arguments on September 12. The DOJ alleged that the tech giant is monopolizing the market by contracting with Apple to become the default search engine for the iOS platform. The DOJ claims that Google and Apple will harm consumers with the possibility they could exploit their dominant positions.
Despite this claim of potential harm, the default search deal between Apple and Google provides an attractive service to consumers in an increasingly competitive market. The result of this lawsuit is a deliberate step backward toward a vision of antitrust that seeks to prioritize the welfare of individual competing firms instead of consumers. Where firms are at the center of government concern, consumers invariably lose.
The Value of the Consumer Welfare Standard
Size and large market share or even contractual restraints in a vertical supply chain to promote one company's products over others can improve consumer welfare. That is because economies of scale and effective advertising may make life better for consumers but not competing firms.
Prior to the adoption of the consumer welfare standard, courts used to rule primarily on how other companies were affected under the assumption that maintaining equally competitive companies was the way consumers would benefit. In general, a robustly competitive market benefits consumers, but when that competition is enforced through government regulation the benefits are less clear.
Markets create value through creative destruction, consumers choose which product they prefer at the price they want and those that can't compete go out of business. Consumer choice is at the center of the process. Antitrust enforcement, when focused on simply how many firms are in a market rather than how consumers make choices, actually hurts consumers.
In 1962's Brown Shoe v. United States the Court sided against a merger because it would increase market concentration and harm competitors by lowering prices and increasing quality. The firms competing, not the consumer, were at the center of the decision. The DOJ's case against Google makes a similar argument, an argument that ultimately could lower consumer welfare.
Disabling Rather than Enabling the Digital Revolution
The DOJ's argument misunderstands the modern tech market, ignoring the fact that digital competition has become more fierce than ever. Microsoft is augmenting its search engine with cutting-edge generative AI, Amazon and Apple are invigorating their ad services, and cloud computing is becoming a staple product suite—all of which have clear improvements for consumer welfare.
The facts of the case make clear that Google's contract with Apple does not prevent users from switching to a rival search engine. Despite years of Google primacy over Microsoft Bing, usage of Bing has more than doubled over the past three years and continues to grow. While Microsoft pours money into improving its products with tools such as generative AI, improvements in useability, and strengthening self-preferencing, Google is understandably not standing idle. Google's contract with Apple seeks to streamline ease of use on iOS platforms and boost the effectiveness of its algorithms through increased user activity.
As intense competition from tech titans—each with their own strengths and weaknesses—unfolds, the DOJ should allow open competition and keep their focus on improving consumer welfare rather than the welfare of individual firms.